Problem
You are an appraiser, and your task is to appraise an office building. You are deciding to use the income method. The building has five floors. Each of the five floors hosts one big office of 5,000 sq ft. currently all of them are rented on 1- year-contracts for a total price of $30,000 per month for each one of the five offices. The market rent is $9/month per square foot for the office space. Expenses for various insurances, property management, and standard maintenance add up to $30,000 per month, while 10% of gross profit is set aside for major renovations in the future. Normal vacancy rates for this sort of commercial real estate account to 10%.
1) You further know from experience that all tenants always pay the entire rent on time. Calculate EGI, NOI, and PGI. Decide whether you want to base your calculations on Market or Contract rents and explain your reasoning.
2) Would a bank lender who requires a debt yield ratio of 9% be willing to grant you a loan of $25,000,000 to purchase such a building? Make sure to base your answer on a calculation.