Real Estate Principles to call regarding finding the Market Value of property using the information below by
Question:
Real Estate Principles to call regarding finding the Market Value of property using the information below by end of the day on Friday.
REAL 4000E
Real Estate Principles
Summer 2016
Income Approach to Valuation
Problem Set
Use the information provided below to estimate the market value of the office building that has
been described.
Type of Property: Office Building
Leasable Space: 75,000 square feet
Average Rent: $20 per square foot per year
Expected Rent Growth: 3% per year
Vacancy and Collection Losses: 10% of potential gross income
Other Income: $1.25 per square foot per year
Expected Growth in Other Income: 3% per year
Operating Expenses: 45% of effective gross income
Capital Expenditures: 3% of effective gross income
Going-In Cap Rate: 7%
Going-Out Cap Rate: 7.25%
Selling Expenses: 5% of future selling price
Discount Rate: 8%
a. What is the market value of this property according to the direct capitalization approach?
b. What is the market value of this property according to the discounted cash flow approach?
Assume that you are going to sell the property at the end of the 5th year of ownership.
Introduction to Accounting An Integrated Approach
ISBN: 978-0078136603
6th edition
Authors: Penne Ainsworth, Dan Deines