An office building contains 12,000 square feet of leasable area. The building is
ID: 2601508 • Letter: A
Question
An office building contains 12,000 square feet of leasable area. The building is 100% occupied. Annual rent per square foot is $9.50. The landlord pays operating expenses of $4.25 per square foot. Market research indicates that investors in the asset market are demanding capitalization rates of 4.0% for this type of property. What is the indicated market value of this property? Round your final answer to the nearest dollar. Do not round intermediate calculations. Enter your final answer as a numeric value with no punctuation.
Explanation / Answer
Usable Area = 12,000 square feet
Annual rent per square feet = $9.5
Less: Operating expenses = $4.25
Net Income per square feet = 5.25
Total rent for building = 12,000 SF x $5.25 = $63,000
Value of building = Rental value/Cap Rate
Value of building = $63,000/4% = $1,575,000