Question
You have been retained by Titan Realty Partners IV, LLC to analyze the potential sale of one of their properties.
The building is a twelve (12) story 118,000 square foot Class A office building with three (3) elevators located in Richmond, Virginia.
The building is currently 100% occupied. The rent roll for the building is shown below.
Titan purchased the building five years ago for $20,500,000. The allocation of the purchase price between the building and land is 80/20. Current capitalization rates are 8%. The current tax rate on ordinary income is 28%.
|
Tenant Name
|
Floor
|
Square Footage
|
Lease Expiration
|
Rent /Square Foot
|
|
|
|
|
|
|
99¢ World
|
Grade Retail
|
14,000
|
March 31, 2029
|
$100.00
|
|
A. Emporium Co.
|
2
|
14,000
|
April 30, 2020
|
35.37
|
|
East Realty LLC
|
3
|
14,000
|
January 31, 2018
|
33.75
|
|
Ace Graphics
|
4
|
9,000
|
April 30, 2019
|
33.26
|
|
Rapid Marketing
|
5
|
9,000
|
October 31, 2022
|
27.12
|
|
SBS Architects
|
6
|
9,000
|
March 31, 2020
|
31.69
|
|
J. Burns & Assoc.
|
7
|
9,000
|
March 31, 2021
|
33.72
|
|
Asia Tours, Int'l
|
8
|
8,250
|
July 31, 2021
|
34.25
|
|
ABS Management
|
9
|
8,250
|
April 30, 2019
|
29.98
|
|
Pi Communication
|
10
|
8,250
|
August 31, 2019
|
34.50
|
|
Law Office
|
11
|
7,625
|
January 31, 2018
|
31.44
|
|
First Investors Inc.
|
12
|
7,625
|
May 31, 2029
|
34.13
|
The building is staffed by a superintendant and two porters. The weekly payroll is $2,500.00. Payroll taxes equate to 12% of gross payroll.
The employer is obligated under the Union contract to contribute $525.00 per month per employee to the Union Health Benefits Program. In addition, the employer must also make contributions to the Pension Plan in the amount of $50.75 per week per employee. Real estate taxes are based upon 45% of the purchase price.
The current tax rate is $60.63 per $1,000 in valuation. The building is heated with #6 oil. The average annual consumption is 180,000 gallons at an average price per gallon of $1.62. The building consumes 87,000 KwH a month in electricity. The utility charges 12.683¢ per Kwh. The local water company supplies water to the building. Current rates are $165.2897 per HCF. Average water consumption is 323.178 HCF.
Repairs and maintenance average $2.49 per sq. ft. The building is insured for full replacement cost. Current premiums for this typical insurance cost 62¢ per square foot. The nightly office cleaning (exclusive of the retail space) is done by a third party contractor.
The current rate is 12¢ per square foot per month. The monthly elevator contract (which is all-inclusive) is $618.25 per elevator per month.
All other miscellaneous costs associated with the operations of the building are 39¢ per square foot. Management Fee is 3% of gross potential rent. A vacancy allowance of 5% is used in comparable buildings.
Given the facts in the case, your job is to
1). create a pro forma income and expense statement,
2). determine a sales price, and
3). determine what Titan's current after tax cash flow is.