- 106 -
proper capitalization rate, our review of the record persuades us
that Carneghi's capitalization rate of 7.5 percent50 is the most
appropriate under the circumstances.
In accord with these findings, under the income
capitalization approach, we arrive at a fair market value of
$1,100,000 (rounded) for the retail/office component of the
Redwood City Fox, calculated as follows:
Contract income-Jacobs lease 11,205 sq.ft. at $0.27 $3,000
Contract income-Cty. of San Mateo lease5,086 sq.ft. at $0.93 4,720
Monthly Gross Potential Income 16,291 7,720
X 12
Annual Gross Income 92,640
Less: Vacancy and credit loss at
Jacobs space 0.0% 0
Cty. of San Mateo space 5.0% 2,832
Effective Gross Income 89,808
Less: Landlord expenses
Reserves 2.0% of effective gross income 1,796
Management 3.0% of effective gross income 2,694
Property taxes 4,050
Total expenses 8,540 8,540
Net Operating Income 81,268
Capitalization Rate 0.0750
49(...continued)
taxes with respect to the space subject to the Jacobs lease is
warranted, as Jacob was responsible for paying the real estate
taxes.
50 Carneghi found that
Considering the quality of the subject * * *
[Redwood City Fox], its lack of parking, the
fact that the subject space is part of a
larger building, and the small size, a rate
of 8.0 percent is concluded. However, the
below market lease for a majority of the
space creates a low risk situation for the
building owner which argues for a lower rate.
Therefore an 7.5 percent rate is used for
capitalization purposes.
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