Question 3- Direct Cap Method-15 Points Question: Use the Direct Cap Method to a

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Question 3- Direct Cap Method-15 Points Question: Use the Direct Cap Method to appraise the following subject property. Property type: Gross Building Area (GBA): 8,500 Net Leasable Area (NLA): 8,000 Tenant Suite 100 Lease: $14.00/sf/yr/Gross Lease, Occupies 4,000 sqft Multi-Tenant Professional Office Tenant Suite 200 Lease: $15.00/sf/yr, Gross Lease, Occupies 4,000 sqgft Subject Vacancy: Market Vacancy: Property Tax Expense: $28,573/Yr Management Expense: 3% of Effective Gross Income Insurance Expense: Maintenance Expense: $0.85/sf of Gross Building Area Reserves for Replacement: $0.25/sf of Gross Building Area Cap Rate: 096-Building is fully occupied 596-Common rate for Offices in area S0.35/sf of Gross Building Area 7.5% 10 Calculate the Following: 1. Potential Gross Income (PGI) 2. Vacancy/Collection Los (V/CL) 3. Effective Gross Income (EGI) 18 19 20 21 4. Operating Expenses (Calculate as $ amount and % of EGI) 5. Net Operating Income (NOI) 6. Value of the Subject 23 24 25 26 27 28 Ready

Explanation / Answer

1. Potential gross income = ($4000*$14/sf/yr)+($4000*$15sf/yr) = $116,000

2. Vacancy/collection loss = $116,000 * 5 % = $5800

Since the increase/decrease in rent value is not given no increase or decrease in the rent value has been considered.

3. Effective Gross Income = PGI-V/CL = 116000-5800 = $110200

4. Operating Expenses =

Reserves for replacement not considered as Operating expense.

5. Net Operating Income = Total Revenue - Operating Expenses = 116000-42079 = 73921

Total revenues are considered as the subject vacancy loss is given to be "0"

6. Value of the Subject = Net Operating Income/Cap Rate = 73921/7.5% = $985,613

If reserves for replacement were considered, The net operating income would be $71796 and the value od subject would be $957280

Expnese Calculation Amount in $ % of EGI Propety Tax 28573 Management Expense 110200*0.03 3306 Insurance Expense 8500*0.35 2975 Maintenance Expense 8500*0.85 7225 Total Operating Expenses 42,079 38.18%

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