What would be the total amount of space, in square feet, that a tenant occupying one of the smallest suites would have to pay rent on?        

Based on the information given, what is the market value of the building, in dollars?    Based on this scenario, what is the investor's pre-tax levered return expectation, in percent?    

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You are considering the purchase of a small office building. The office building specializes in offering facilities to small startup firms who are looking to avoid long-term commitments while their businesses are growing. Tenants sign one-year leases and may renew at market rates, if they so desire. The building is configured with 20 suites. Five (5) suites have 4,000 useable square feet and five (5) have 2,500 usable square feet. The remaining 10 suites each have 1,000 useable square feet. The building has 7,500 square feet of common area. In addition, a food truck pays $5,000 per year to operate in the parking lot during lunch hours. Market rents are $35 per square foot, based on total leased space. As this is the only similar facility in the market, market rents are expected to increase 4% per year indefinitely. Property taxes are $250,000 per year and increases are capped at 2% per year. Other operating expenses total $280,000 per year and are expected to increase at the rate of inflation, estimated at 3% per year. In most years, capital expenditures equal 4% of effective gross income, although the roof will need to be replaced just before the expected sale at the end of year 5, at an estimated cost of $175,000. You estimate that 5% of the space will be vacant, on average, and that collection losses will total 2% of occupied space. Your market review indicates this property will sell at a price yielding a going-in capitalization rate of 8%. You are considering the purchase of a small office building. The office building specializes in offering facilities to small startup firms who are looking to avoid long-term commitments while their businesses are growing. Tenants sign one-year leases and may renew at market rates, if they so desire. The building is configured with 20 suites. Five (5) suites have 4,000 useable square feet and five (5) have 2,500 usable square feet. The remaining 10 suites each have 1,000 useable square feet. The building has 7,500 square feet of common area. In addition, a food truck pays $5,000 per year to operate in the parking lot during lunch hours. Market rents are $35 per square foot, based on total leased space. As this is the only similar facility in the market, market rents are expected to increase 4% per year indefinitely. Property taxes are $250,000 per year and increases are capped at 2% per year. Other operating expenses total $280,000 per year and are expected to increase at the rate of inflation, estimated at 3% per year. In most years, capital expenditures equal 4% of effective gross income, although the roof will need to be replaced just before the expected sale at the end of year 5, at an estimated cost of $175,000. You estimate that 5% of the space will be vacant, on average, and that collection losses will total 2% of occupied space. Your market review indicates this property will sell at a price yielding a going-in capitalization rate of 8%.

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