Question

CALCULATIONS (50 POINTS) On another sheet, complete the pro forma using your personal expectations given the following inputs. Also please describe what you think is occurring here based on the information you've been provided. Explain all your assumptions. Rate Assumptions: Base Rent Year Over Year Growth Vacancy Rate % Credit Loss % Gross Income Expense Year Over Year Growth Management Fee % Reimbursables Leasing Commissions Year 1 0.00% 2.00% 15.00% 0.00% Year 2 2.00% 2.00% 15.00% 0.00% Year 3 8.00% 20.00% 2.00% 5.00% Year 4 5.00% 2.00% 5.00% 4.00% Year 5 0.67% 3.00% 4.00% 4.00% 0.00% 0.00% 5.00% 2.00% 2.00% Gross Square Footage Elevators Elevator Lobbies Cell Antenna Partnership Lease rents Capitalization Ratio California Property Tax 1,000,000 15% 10% $4000 / mo. $2.00 / sq. ft. 7.00%

Answer 1

Year -1

There is no increase in the expense cost. Due to this the owner doesnot increase the rent cost. The Vacancy rate is at low of 2% and the credit loss rate is around 15%

Year -2

There is no increase in the expense cost. But the owner increase the rental by 2%. The growth in rent is minimum therefore there is no change in Vacancy rate and still at low of 2% but the credit loss rate is still high and around 15%.

Year -3

In order to reduce the credit loss of income, the owner increases the leasing commision. It helps the owner to reduce the credit loss upto 13% and it comes as low as 2%. but due to this the leasing commisio has been increasing by 5%. The expense year by year of lease rentals has also increase by 5%. Increase in commision cost and in rental cost, the owner increase the rental by 8%. Due to very high rentals, so many peoles left the hoem and this results in increasing in vacancy rate from 2 % to 20%.

Year -4

The rental expenses and commision cost further increases by 4% and 2 %. This creates pressure on the owner and now he increases the rentals by 5%. The tenants starting taking home on the leases and now the vacancy rate drops from 20% to 2%. But due to increase in the tenants and reduction in vacancy rate, credit loss further rises and reaches upto 5% from 2%.

Year -5

The rental expenses and commision cost further increases by 4% and 2 %. This creates pressure on the owner and now he increases the rentals by only 0.67%. He tries to maintain the vacancy ratio, and due to this the vacancy ratio has been increases only by 1%. Due to increase in vacancy rate, there are less tenants live in the society, therefore the credit loss has been drop by 1% and it reaches to 4% from the last 5% in last year.