Forecasting NOI and Cash Flow available for Debt Service for a Property Paper

Using the Office & Retail with Prob Forecasting model:.

Forecast a 5 year investment period commencing 1/1/2021.

Make the building 7,000 sf

Have 2 office spaces, 2,000 each, and 1 retail tenant also 3,000 sf

As of 2020 market office rents are assumed to be $27 psf, and are expected to grow by 2.50% starting in 2021 and going forward.

CPI index as of end of 2019 was 225 and is expected to increase by 4 index point every year after that.

Office 1 is occupied with a tenant whose lease started on 1/1/18 with a 4-year term.

The base rent in 2018 was $25 and increases every year by $0.50

It pays it 105% of it’s prorate share of operating expenses and real estate taxes.

Office Space 2 is currently vacant.

Assumptions for office spaces are:

For vacant spaces, there will be 5 months of vacancy. When signed, the new Leases for New Tenant will have 5 year terms, 4 months of free rent, $8 psf of TI, and leasing commissions of 5.0% of lease base rents

Reimbursements will be base stops using the first lease year’s operating expenses and real estate taxes as the base.

Leases for Existing Tenants that renew will have 5 year terms, will have 2 months of free rent, $4 of TI, and leasing commissions of 1.5% of leases’ base rents.

Reimbursements will be base stops using the prior year’s operating expenses and real estate taxes as the base.

There is a retail tenant whose lease started 1/1/19 with a 20-year term. Base rent is $42 and increases with CPI (100%). No reimbursements for taxes or operating expenses. But it pays the landlord 12% of its sales over a $300,000 base. and its sales in 2020 were $400,000 and are expected to grow at 120% of CPI going forward.

Operating expenses in 2020 were $45,000 and increase with CPI. Real Estate taxes were $15,000 in 2020 and are expected to increase by 2.0% per annum.

Forecast this NOI and the Cash Flow available for Debt Service for this property.

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