Boston Investment Group $($BIG$)$ is considering investing in a commercial office building in Waltham. Your firm has been engaged to provide an estimate of value. You will use the Income Approach to determine value which will require that you: A$)$ Construct a Five Year Cash Flow Statement $($CAPX $$below the line$)$ for the property beginning calendar year $20--$ through $20....$ B$)$ Determine Value $($i$.$e$.$ the price BIG should pay$)$ which will require that you calculate terminal value and net sale proceeds. BIG wants a $8\mathrm{.}5\%$ Total return on the Waltham investment. Facts: Waltham Building$-3$ stories, $150,000$ RSF$.$ The Waltham Building Rent Roll$-$ eight$(8)$ tenants and two$(2)$ vacant spaces as of January $1,20--$:

FLOOR $1$

$1.$ Good credit tenant, $20,000$ RSF$,10-$year lease paying $$25$ per RSF per years

$2.$ Vacant space, $5,000$ RSF

$3.$ Holdover tenant $5,000$ RSF

$4.$ Good credit tenant, $20,000$ RSF$,2-$year lease paying $$55$ per RSF per year

FLOOR $2$

$5.$ Good credit tenant, $32,000$ RSF$,10$ year lease paying $$15$ per RSF per year

$6.$ Good credit tenant, $18,000$ RSF$,4$ year lease paying $$20$ per RSF per year

$7.$ Good credit tenant, $15,000$ RSF$,3$ year lease paying $$30$ per RSF per year

$8.$ Tenant at Sufferance, $17,500$ RSF$,$ paying $$25$ per RSF per year

$9.$ Month $$to$-$month tenant, $2,500$ RSF$,$ paying $$40$ per RSF per year

$10.$ Vacant space, $15,000$ RSF

Expense recovery revenue$($escalation$)$:

Year $1-$ $$76,000$; $2-$ $$69,000$; $3-$ $$84,000$; $4-$ $$57,000$; $5-$ $$70,000$; $6-$ $$62,000.$

Miscellaneous Inc.: The property is also projected to generate $$250,000$ in Year $1$ from the building$$s parking garage, overtime heating$/$cooling for tenant spaces and special maintenance services. These revenues will grow at a rate of $4\%$ per year.

Estimated Operating Expenses for Year $1$ are as follows:

$$ Fixed expenses $$770,000$

$$ Variable expenses $$845,000$

Estimated Capital Expenditures are:

$$ Building Capital: $$500,000$ for Year $1$ and Year $2$ and $$350,000$ thereafter

$$ Leasing Capital: Tenant Improvement Allowance$-$$$90,000$ per tenant; Brokerage Commission$-$$$50,000$ per tenant. $($Note: leasing capital required for all new leases effective January $1,20--)$

Market Assumptions:

$1.20--$ market rent rate: $$35$ per RSF per year

$2.$ Market rent annual growth rate $5\%$

$3.$ Gen. Vac.$/$Collection loss factor: $3\%$

$4.$ Operating Expense annual growth rate: Fixed $3\%$; Variable $4\%$

$5.$ Vacancy: Downtime$-3$ months; Build$-$out$-2$ months

$6.$ Free Rent concession $-2$ months, due to competitive leasing market.

$7.$ Market standard lease term is $10$ years

$8.$Exit cap$$ rates are $75$ basis points $($bps$)$ over $$Going$-$in$$ cap rates. Market comparables show that going$-$in cap rates are at $6\%$

$9.$ Cost of sale expenses for the transaction equal $$528,000$