You have just been contacted by a broker who has informed you that the Bannon Building is on the market. The asking price for the property is $9.35M and the basic market, lease, and mortgage information are summarized in the table below. Assume that the current tenantís lease will expire at the end of year 3.

(a) Given the information in the data sheet, project net operating income for this property for a period of 6 years.

(b) Using the initial capitalization rate as your basis for determining the reversion value of the property in year 5. What is the unlevered return on your equity investment assuming that you receive this estimated reversion value at the end of your holding period?

The Bannon Building
General data:
Property type	Office
Rentable SF	75,000	75,000.00
Number of tenants	1
Inflation rate	0.03	0.03
Price	$9.35M	9,350,000.00
Market data:
Market rent	$15.50/SF	15.50
Rental growth rate	3%	0.0300
Renewal probability	75%	0.7500
Months vacant	6	6.00
Required return	12%	0.1200
Lease terms:
Maturity	5 years	5.00
Base rent	$15/SF	15.00
Escalation	50% of CPI	0.50
Reimbursements	Base stop, $2.50/SF	2.50
TI - Initial	$15/SF	15.00
TI - Renewal	$5/SF	5.00
Rent abatement - Initial	6 months	6.00
Rent abatement - Renewal	None
Other income and adjustments:
Collection losses	1% of EGI	0.0100
Capital expenditures	5% of PGI	0.0500
Operating expenses:
Real estate taxes	$80,000	80,000.00
Utilities	5.75% of EGI	0.0575
Insurance	$75,000	75,000.00
Management (Non-reimbursable)	5% of EGI	0.0500
Disposition:
Sale commission	4% of sale price	0.0400

Answer rating: 100% (QA)

a The table below summarizes my projected net operating inc... View the full answer