Question

You have been asked to appraise the market value of an industrial project. therefore, you need to determine the project's net operating income. the building is compromised of 35,000 square feet of rental space on which rent is charged at $6,50 per square foot per annum. All leases are to be fully net (the tenant pays all operating expenses except management management expenses). Management expense is estimated to be 15% of annual effective gross income. The vacancy rate is 5% and depreciation expense for the year is $25,000. What is the net operating income of this project?

(1) $172,073

(2)$183,706

(3)$199,573

(4)$167,073

Answer 1

Calculation of net operating income
(Gross income - operating expenses)
Building area	35000 square feet
Less:Vacancy square feet(5%) (35000 *5%)	1750 square feet
Effective square feet to be rented	33250 square feet
Rental income @ $ 6.50 per square foot(33250 x 6.50)	216125
GROSS INCOME	216125
Less:Operating expense:Management expense(15% of 216125)	32418.75
Net operating income	183706.25
Option -2 is correct