You are a broker and preparing an income and expense analysis for an office buil
ID: 2755047 • Letter: Y
Question
You are a broker and preparing an income and expense analysis for an office building that you are trying to sell. There are three tenants. Tenant A leases 60,000 sf and pays rent of $20 per square foot and pays its pro rata share of increase in operating expenses above the expenses in the first year of their lease (base year). Tenant B leases 100,000 sf and pays $11/sf and its pro rate share of all expenses (net). Tenant C leases 40,000 sf and pays $24 full service. Use the following information to calculate the current year’s Net Operating Income. Assume that potential gross income is reduced by 5% for the general vacancy.
Tenant A Base / SF
Current Expense /sf
Tax
4.00
4.36
Insurance
0.50
0.55
Utilities
2.75
3.00
R and M
2.00
2.18
Salaries
1.25
1.36
Total
10.50
11.45
Property Investment and Financing
Tenant A Base / SF
Current Expense /sf
Tax
4.00
4.36
Insurance
0.50
0.55
Utilities
2.75
3.00
R and M
2.00
2.18
Salaries
1.25
1.36
Total
10.50
11.45
Explanation / Answer
Tenant A Tenant B Tenant C Leases(SF) 60000 100,000 40,000 Rent per SF $20 $11 $24 gross income $1,200,000 $1,100,000 $960,000 vacancy $60,000 $55,000 $48,000 income after vacancy $1,140,000 $1,045,000 $912,000 Tax 240,000 436,000 0 Insurance 30,000 55,000 0 Utilities 165,000 300,000 0 R and M 120,000 218,000 0 Salaries 75,000 136,000 0 Total 630,000 1,145,000 0 Net operating income $1,770,000 $2,190,000 $912,000
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