You consider buying an investment commercial property in New York. This property is 100% occupied and has three tenants, whose leases have 10 years remaining until the end of the lease term. 1^st tenant occupies 5,000 SF and pays the gross rent of $30 per square foot (PSF). 2^nd tenant occupies 3,000 SF, paying the gross rent of $31 PSF. 3^rd tenant occupies 2,000 SF, paying the gross rent of 28 PSF. All three tenants have 3% annual increase in the gross rent. However, the future expenses (i.e. insurance, tax and CAM charges) are expected to increase 5% annually. During the due diligence, youve found out that the building requires an annual payment of $8,000 insurance, $65,000 property tax, and $13,500 common area maintenance (CAM) expenses.

1. What is the Net Operating Income (NOI) for the first year?

2. What would be the value of this property using the CAP approach? Assume the average CAP rate for the similar properties is 6.5percent.

3. You plan to own this property for five years. You firmly believe that this property can be sold at 7% CAP rate after 5 years. If the appropriate discount rate for this type of property is 8%, how much are you willing to pay for this property following the Discounted Cash Flow methods?