Boston Investment Group (BIG) is considering investing in a commercial office building in Waltham. Your firm has been engaged to provide an estimate of value. You will use the Income Approach to determine value which will require that you: A) Construct a Five Year Cash Flow Statement (CAPX "below the line") for the property beginning calendar year 20-- through 20--. B) Determine Value (i.e. the price BIG should pay) which will require that you calculate terminal value and net sale proceeds. BIG wants a 8.5% Total return on the Waltham investment. Facts: Waltham Building- 3 stories, 150,000 RSF. The Waltham Building Rent Roll- eight(8) tenants and two(2) vacant spaces as of January 1, 20--: Floor 1 1. Good credit tenant, 20,000 RSF, 10-year lease paying $25 per RSF per years 2. Vacant space, 5,000 RSF 3. Holdover tenant 5,000 RSF 4. Good credit tenant, 20,000 RSF, 2-year lease paying $55 per RSF per year Floor 2 5. Good credit tenant, 32,000 RSF, 10 year lease paying $15 per RSF per year 6. Good credit tenant, 18,000 RSF, 4 year lease paying $20 per RSF per year Floor 3 7. Good credit tenant, 15,000 RSF, 3 year lease paying $30 per RSF per year 8. Tenant at Sufferance, 17,500 RSF, paying $25 per RSF per year 9. Month-to-month tenant, 2,500 RSF, paying $40 per RSF per year 10. Vacant space, 15,000 RSF Expense recovery revenue (escalation): Year 1 - $76,000; 2- $69,000; 3- $84,000; 4- $57,000; 5 - $70,000; 6 - $62,000. Miscellaneous Inc.: The property is also projected to generate $250,000 in Year 1 from the building's parking garage, overtime heating/cooling for tenant spaces and special maintenance services. These revenues will grow at a rate of 4% per year. Estimated Operating Expenses for Year 1 are as follows: Fixed expenses $770,000 Variable expenses $845,000 Estimated Capital Expenditures are: • Building Capital: $500,000 for Year 1 and Year 2 and $350,000 thereafter • Leasing Capital: Tenant Improvement Allowance-$90,000 per tenant; Brokerage Commission- $50,000 per tenant. (Note: leasing capital required for all new leases effective January 1, 20--) Market Assumptions: 1. 20-- market rent rate: $35 per RSF per year 2. Market rent annual growth rate 5% 3. Gen. Vac./Collection loss factor: 3% 4. Operating Expense annual growth rate: Fixed 3%; Variable 4% 5. Vacancy: Downtime- 3 months; Build-out- 2 months 6. Free Rent concession - 2 months, due to competitive leasing market. 7. Market standard lease term is 10 years 8. "Exit cap" rates are 75 basis points (bps) over "Going-in" cap rates. Market comparables show that going-in cap rates are at 6% 9. Cost of sale expenses for the transaction equal $528,000