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You would like to buy an industrial property in Pointe-Claire that has two tenants occupying all of the leasable area. The current owner provides you

You would like to buy an industrial property in Pointe-Claire that has two tenants occupying all of the leasable area. The current owner provides you with the following information.

  • One tenant has six years remaining on his lease. It is a triple-net lease with a base rent of $50,000 per year for 5,000 square feet. The tenant has always paid his rent on time.

  • The second tenant has 4 years remaining on his lease. It is a double-net lease with a base rent of $30,000 per year for 4,000 square feet. The tenant has always paid his rent on time

  • There is a small common area of 1,000 square feet.

  • The owner provides you with an income statement showing the following expenses for last year. Maintenance expenses are expected to increase by $2,000 starting this coming year. All other expenses are not expected to change.

Property taxes $8,000
Income taxes $7,000
Property insurance $5,000
Snow removal $1,000
Maintenance $5,000
Management and Other $3,000
Depreciation $6,000

  • The property has no expected vacancy or credit losses.

  • The owner has allowed a local company to put up a sign on the side of the building for $1,000 per year.

  • The capitalization rate for comparable properties is 10%.

Calculate the value of the property using the Income Capitalization Approach.

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