The following problem will be used for the remaining questions: Problem: You are thinking about investing in a small strip retail center. The broker has a 35,000 SF, 4 bay center listed for $3,565,000. You think there is good value add and are planning on offering the seller 90% of the asking price or $3,200,000, rounded. This analysis is based on the assumption the seller accepts your offer. Each bay leases for $10,500 per month. Vacancy in this market is 5%; credit loss 1%. Operating expenses are 45% of EGI. Capital expenditures for the replacement reserve =4% of EGI. Your personal investment criteria is to include this CapX above the line. The loan terms are 6.5% amortized over 20 years at a 70% LtV. Upfront fees are 5% of the loan amount. What is the capitalization rate? 8.02% 5.88% 7.55\% 6.31% What is the Potential Gross Income? $504,000$213,192$42,000$473,760