Question

Office building, 3 stories, 3000 square feet (sf) gross interior floor space each, 2 tenants per floor, 1350 sf of the building is used for hallways, common bathrooms, stairs, elevator, and lobby. Owner wants a gross rent of $135,000 per year.

A. What is the rent that the Owner should charge per square foot? If Tenant Z rents 1200 sf of usable area, what will be his monthly rent?

B. If the building has an operating expense ratio of 28% of gross rents, including vacancy and reserves, what is the Net Operating Income? The sale price at 9% CAP rate?

Answer 1

Answer:

A. Rent to be charged per square foot (yearly)= $81.82

Monthly rent of Tenant Z= $8,181.82

Net operating income= $97,200

CAP rate is the ratio of net operating income to the capital cost or the current value.

Sale price at 9% CAP rate=$1,080,000

Detailed working as follows:

А B 3000-1350= 1 Total area in sq. ft= 2 Less common area in sq.ft 3 Net rentable area= 4 Gross rent required per year = 5 Therefore, yearly rent to be charged per sq. ft= 6 Area rented by Tenantz (sq. ft)= 7 Yearly rent for Tenant Z 8 Therefore, monthly rent for Tenant Z= 3000 1350 1650 $135,000 $81.82 1200 $98,181.82 $8,181.82 135000/1650= $81.82*1200= $98,181.82/12= $37,800 $97,200.00 10 Operationg expenses (yearly) @28% of gross rent= $135,000*28%= 11 Therefore, net operating income= $135,000*(1-0.28)= 12 13 Given, CAP rate is 9%. Let the value be 'p' 14 Then, P*9%= Net Operating Income=$97,200 15 That is, P*9%=97,200. Or, P=97,200/9% 16 Therefore, Price P= $97,200/0.09= 17 $1,080,000.00