1a. You have been asked to develop a pro forma statement of cash flow for an office plaza. The information given to you is listed below:

Property Information:

Age 8 years

Rentable Space 300,000 sq.ft.

# Stories 15

# Tenants 40

Financial Information:

Base Rent Avg. $20 per sq.ft.

Other Income/Parking $1.50 per sq.ft.

Expenses Recoverable from Tenants $2.50 per sq.ft.

Current Vacancy equals to 5% of base rents

Expenses

Mgmt./Admin./Security $695,000

Property Taxes $675,000

Insurance $430,000

General Operations/Leasing Expense $667,000

Utilities $1,159,100

Janitorial/Cleaning $489,000

Business Taxes $110,000

Other

Recurring CAPEX/Improvement Allowance $700,000

What is the net operating income for the office plaza based on the pro forma statement of cash flow for a base year you developed?

A. $1,074,900

B. $1,974,900

C. $1,524,900

D. $2,274,900

1b. A building owner is evaluating the following alternatives for leasing space in an office building for the next five years (using a 5% discount rate):

1. Net lease with steps. Rent will be $10/ square foot the first year and will increase by $1.50 per square foot each year until the end of the lease.
2. Net lease with CPI adjustments. The rent will be $12 /square foot the first year. After the first year, the rent will be increased by the amount of any increase in the CPI. The CPI is expected to increase 4% per year.
3. Gross lease. Rent will be $28/square foot each year with the lessor responsible for payment of all operating expense. Expenses are estimated to be $10 during the first year and increase by $1 per year thereafter.
4. Gross lease with expense stop and CPI adjustment. Rent will be $20 the first year and increase by the full amount of any change in the CPI after the first year with an expense stop at $10/square foot. The CPI and operating expenses are assumed to change by the same amount as outlined in II and III.

What is the effective rent to the owner (after expenses) for Net lease with CPI adjustments?

A. 13.00/ square foot

B. 56.06/ square foot

C. 12.95/ square foot

D. 14.22/ square foot