Problem
Your client is purchasing, a 50, 000 square foot retail strip center in Orange, CT. There is a 30,000 square foot grocery anchor and eight 2,500 square foot retail stores. Two units are vacant. The grocery anchor pays $10.00 per square foot net rent and has 9 years remaining on their lease. The 6 occupied retail tenants pay $12.00 per square foot net and remaining lease terms range from 6 to 9 years. Market rent for comparable retail space is $15.00 net + CAM. All leases for the subject property are net plus CAM (Common Area Maintenance) charges.
Operating Expenses are:
RE Taxes $4.00 per square foot per annum.
Property insurance is $0.75 per square foot per annum.
Property Management is 5.0% of Gross operating income.
Repairs and Maintenance is $0.50 per square foot per annum.
Common Utilities run about $0.85 per square foot per annum.
Legal fees and accounting run about $2,000 per year
Advertising runs about $3,000 per year.
Snow removal averages about $12,000 per year, Ground care runs about $11,000 per year.
HVAC Contract is $1,500 per quarter.
Financing:
Financing is available for $4,604,025 at 5.25% for a 20-year amortization with monthly payments and a 5-
year term. The lender is charging 1 point.
Develop a 5 Year Cashflow After Tax Analysis,
Vacancy rate for years 1 is at 10.0% and declines the second year forward to 6.0%
Rental income will increase in year two 2.5% thereafter.
Other income will increase 3.0% each year.
Expense escalation will be 2.0% year 2 and 3.0% thereafter.
Holding period 5 Years - Year of acquisition Buy in January -
Year of disposition Sell in December-Cost at acquisition is $15,000 and Sale cost 5.5% of sale price.
Taxes:
Assessor's records indicate 20% allocation to land and 80% to improvements.
Marginal tax rate is Federal 28%-State 5%- Federal Capital Gain Tax=20% State =6% Federal recapture tax is 25%- You Buy the property in January and sell it in December in sale year.
Cap Rates: Going in cap rate of 6.5% and going out cap rate 6.0%
I. What is the estimated purchase price of the subject property?
II. What is the estimated sale price at the end of the 5-year holding period?
III. What is my effective Tax Rate?
IV. What is the 2022 median income for Orange CT?
V. How much is spent on Food at Home and away per annum in Orange CT?
VI. How many Households are there in 2022 and 2027?
VII. What is the HH Size for 2022& 2027?
VIII. How many Lifestyles are there in Orange CT?
IX. Which Lifestyle has the largest net worth and median Income,
X. What % are college graduates in the largest lifestyle?
XI. Largest lifestyle- What is their labor participation rate?
XII. Largest lifestyle-Do they embrace technology?
XIII. Largest lifestyle-What percent rent?
XIV. In Orange- what is the expenditure index for furniture?
XV. What is the average dollar amount spent on furniture in Orange?