- Oct 28, 2004
- Professional Status
- Certified General Appraiser
You are appraising a single tenant retail building, 13,000 square feet of gross leasable area. Market rents in the area"The landlord is depositing 5% of his effective income annually to a sinking fund to save for future capital expenses."
I think the purpose of the problem is to figure out the PW of the income stream and reversion. I think you are reading too much into the 'sinking fund' comment. I take it to mean
he has set up a depreciation account of 5% of effective gross, so it would come off of net income after vacancy.
are $12.75 per square foot annually on a NNN basis. Vacancy and collection losses in the market for similar buildings are
tracking at 5% of gross income. Because it is a NNN lease, the tenant is paying all the real estate operating expenses. The
landlord is depositing 5% of his effective income annually to a sinking fund to save for future capital expenses. Total
annual net operating income is expected to be the same over a 5 year holding period. The buyer and her agent expect
the property to sell for $2.1M at the end of the five year holding period. What is the buyer willing to purchase this
property for if her required rate of return on the investment is 9%?
Each answer is worth 1 pt
PGAI $12.75 x 13,000 = $165,750
VCL $165,750 x 0.05 = $8287.5
EGI $165,750 - $8287.5 = $157,462.5
0.05 x 157,462.5 an OE of $7873.12 I got this with the HP12c calculator.
NOI = $157,462.5 - $7,873.12 = $149,589.38
PV of the annual cash flows $1,364,855.91
PV of the reversion $1,334,232.22
What is the buyer willing to pay for this property? round to the nearest $1000 = $1,334,000.