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lease covered all but 22 percent of the rentable area.
Consequently, Mansbach reduced effective gross income by only 22
percent of the expenses he had previously estimated. With
respect to the capitalization rate, Mansbach did not change it
from the 9 percent he previously estimated without consideration
of the Jacobs lease.
Incorporating the provisions of the Jacobs lease, Mansbach
estimated the value of the retail/office component of the Redwood
City Fox under the income capitalization method to be $631,000
(rounded), computed as follows:
REVENUE
Contract Rent: 9,071 sq.ft. @ $ 3.97 = $36,000
Market Rent: 2,611 sq.ft. @ 12.00 = 31,332
2,475 sq.ft. @ 3.00 = 7,425
Total Potential
Gross Income 14,157 sq.ft. @ 5.28 Avg. $74,757
Less Vacancy & Collection Loss@ 5.00% (3,738)
Effective Gross Income 71,019
EXPENSES
Taxes $1,389
Utilities $1.50 per sq.ft. 3,917
Maintenance & Repairs1.75 per sq.ft. 4,569
Insurance 0.30 per sq.ft. 783
Management 3.00% effective gross income 2,131
Reserves 2.00% effective gross income 1,420
Total Expenses $1.22 per sq.ft. $14,209 (14,209)
Net Operating Income $56,810
Capitalized @ 9.00% $631,227
Rounded to $631,000
6. Mansbach--Value Reconciliation
Mansbach estimated the value of the Redwood City Fox, as of
December 31, 1986, and considering the Jacobs lease, to be
$1,290,000 (rounded), computed as follows:
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