Due Wednesday by 11:59pm Points 10 Submitting a file upload Assume that the foll
ID: 2437332 • Letter: D
Question
Due Wednesday by 11:59pm Points 10 Submitting a file upload Assume that the following Comparable Sales for office properties are observed Comparable A: Sales Price $1,600,000: 1st year NOI $150.000 Comparable B: Sales Price-$1,700,000; 1st year NOI-$170,000 Comparable C: Sales Price $1,960,000 1st year NOI $240,000 Comparable D: Sales Price $1,200,000; 1st year NOI- $105,000 1) Weighting all comparables equally, utilize direct market extraction to determine an appropriate cap rate based on these 4 comparables. 2) Calculate the 1st year NQl for an office property with the following characteristics -Projected 1st year Potential Gross Income (PGI) of $950,000. -Vacancy and Collection cost is 12% of PGI -Operating Expenses are 40% of Effective Gross Income (EGI -Capital Expenditures are budgeted at 5% of EGI 3) Based on your answers above utilize direct capitalization the cap rate method) to determine th property described in question 2 utilizing the cap rate from question 1. e value of the office Eile Upload Google Doc Arc Office 365 Upload a file, or choose a file you've already uploaded. File No file chosenExplanation / Answer
Solution:
(1) - Determination of An Appropriate Cap rate basing on Comparables:
Formula : 1st Year NOI/Sales price:
* Cap rate for A = 150,000/16,00,000
= 0.09375
* Cap rate for B = 1,70,000/17,00,000
=0.1
*Cap rate for C = 2,40,000/19,60,000
= 0.12245
*Cap rate for D = 1,05,000/12,00,000
= 0.0875
Therefore Average Cap rate:
= (0.09375 + 0.1 + 0.12245 + 0.0875)/4
= 0.4037/4
= 0.100925
=10.09%
(2) : Calculation of 1st year NOI:
Given:
* Potential Gross Income(PGI) = $9,50,000
* Vacancy & Collection cost = 12% of 950,000(PGI)
= 1,14,000
*Effective Gross income(EGI) = potential gross income-vacancy&collection cost
=950,000 – 114,000
= 836,000
*Operating Expenses = 40% of Effective gross Income
=40% * 8,36,000
= 3,34,400
*Capital expenditure are budgeted at 5% of EGI:
= 5%*8,36,000
= 41,800
Therefore NOI = EGI-Operating expenses-capital expenditure
= 8,36,000 - 3,34,400 - 41,800
NOI = $ 4,59,800 (We have not subtracted taxes here.)
(3) - Valuation of Office Property:
= NOI/Cap rate
= 459,800/0.1009
Office Property = $4,556,987.116
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