You are a broker and preparing an income and expense analysi

You are a broker and preparing an income and expense analysis for an office building that you are trying to sell. There are three tenants. Tenant A leases 60,000 sf and pays rent of $20 per square foot and pays its pro rata share of increase in operating expenses above the expenses in the first year of their lease (base year). Tenant B leases 100,000 sf and pays $11/sf and its pro rate share of all expenses (net). Tenant C leases 40,000 sf and pays $24 full service. Use the following information to calculate the current year’s Net Operating Income.   Assume that potential gross income is reduced by 5% for the general vacancy.

Tenant A Base / SF

Current Expense /sf

Tax

4.00

4.36

Insurance

0.50

0.55

Utilities

2.75

3.00

R and M

2.00

2.18

Salaries

1.25

1.36

Total

10.50

11.45

Property Investment and Financing

	Tenant A Base / SF	Current Expense /sf
Tax	4.00	4.36
Insurance	0.50	0.55
Utilities	2.75	3.00
R and M	2.00	2.18
Salaries	1.25	1.36
Total	10.50	11.45

Solution

Tenant A Tenant B Tenant C Leases(SF) 60000 100,000 40,000 Rent per SF $20 $11 $24 gross income $1,200,000 $1,100,000 $960,000 vacancy $60,000 $55,000 $48,000 income after vacancy $1,140,000 $1,045,000 $912,000 Tax        240,000        436,000 0 Insurance          30,000          55,000 0 Utilities        165,000        300,000 0 R and M        120,000        218,000 0 Salaries          75,000        136,000 0 Total        630,000    1,145,000 0 Net operating income $1,770,000 $2,190,000 $912,000