You consider buying an investment commercial property in New York. This property

Question

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. 1st tenant occupies 5,000 SF and pays the base rent of $10,000/month. 2nd tenant occupies 1,500 SF, paying the base rent of $2,500/month. 3rd tenant occupies 3,000 SF, paying the base rent of $5,000/month. All three tenants have the absolute Triple Net lease and 3% annual increase in the base rent. During the due diligence, you’ve found out that the building requires an annual payment of $9,000 insurance, $35,000 property tax, and $11,000 common area maintenance (CAM) expenses.

A)   What is the base rent and additional rent (i.e., insurance, tax, & CAM) per square foot (PSF)

B)   If similar properties in the area have been sold at an average of 6.5% CAP, what would be the estimated value of this property using the CAP approach?

Explanation / Answer

Answer B)

Anticipated holding period: 10      (may be from 2 to 10 years) Potential Gross Rent inputs: Units Monthly Rent Input in yellow cells only. Type 1:   Two-Bedroom 5,000 $5,000 (input for purchase price is on the Sale worksheet) Type 2:   One-Bedroom 1,500 $2,500 Type 3:   Studio Units 3,000 $5,000 Square Feet Annual Rent / SF Non-residential input: Annual gross rent estimate:   $525,000,000 0*           1           2           3           4           5           6           7           8           9 Increase in rents: 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% (to the following year)    * fill in this box only if monthly rents above are current and need to be adjusted for the first year of operations

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