You are considering an investment in a 250,000 sq ft office building. Market ren
ID: 2619488 • Letter: Y
Question
You are considering an investment in a 250,000 sq ft office building. Market rent in this area is currently $25/sq ft and is expected to increase at a rate of 5% annually into the foreseeable future. Comparable buildings in this area have a 6% vacancy rate. Expenses are currently $13/sqft and have been increasing by $1/sqft annually. Typically half of the operating expenses are recovered from tenants. When getting into a project of this type you generally consider a 5-year holding period and look for a 12% rate of return.
Create the pro forma cash flow statement for this investment.
Explanation / Answer
Given 6% vacancy rate, 94% is the ocupancy rate and accordingly rent receivable will be calculated for 94% only.
Following Cash flow statement can be attained given the information -
pro forma cash flow statement(Amount in $)
Particulars
Year 1
Year 2
Year 3
Year 4
Year 5
Annual Rent Receivable(250000x25x94%) - increased by 5% annually
5875000
6168750
6477188
6801047
7141099
Less- Operating Expenses incurred(13 x 250000) increased by 1 $ annually
3250000
3500000
3750000
4000000
4250000
Add - Expenses recovered from tenants(50% of operating expenses)
1625000
1750000
1875000
2000000
2125000
Net Benefit
4250000
4418750
4602188
4801047
5016099
pro forma cash flow statement(Amount in $)
Particulars
Year 1
Year 2
Year 3
Year 4
Year 5
Annual Rent Receivable(250000x25x94%) - increased by 5% annually
5875000
6168750
6477188
6801047
7141099
Less- Operating Expenses incurred(13 x 250000) increased by 1 $ annually
3250000
3500000
3750000
4000000
4250000
Add - Expenses recovered from tenants(50% of operating expenses)
1625000
1750000
1875000
2000000
2125000
Net Benefit
4250000
4418750
4602188
4801047
5016099
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