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You have been instructed to complete a market valuation on a single tenant commercial property located in Mt Wellington for mortgage security purposes. The bank has specifically requested that you value this property having regard to the two most common investment approaches - Direct Capitalisation and Discounted Cash Flow. Your client has advised you that the building has been leased today, to a national tenant for a nine-year term at a gross commencement income of $457,000 per annum plus GST paid yearly in advance, which in your opinion is above market rental levels. However, the tenant was given a rental incentive, equivalent to nine months' rent, as a cash payment on commencement, to go towards office fit out works. You have been provided with the following assumptions/ determinants: Valuation Date: DCF Period: Discount rate: Terminal yield: Today Five years 6.50% 8.00% Market Derived capitalisation rate: Current assessed net market rental: Building net lettable area: Unrecovered OPEX: 7.50% $361,000 per annum plus GST and OPEX 3,100 square metres $25 per square metre plus GST Rental incentives (on commencement): $284,625 plus GST Rental reviews: Ratchet clause: Market rental increase: OPEX increase: Purchase price: Capital expenditure: Two yearly to market Soft 2.00% p.a. compounding 1.50% p.a. compounding $4,900,000 plus GST $79,000 plus GST at the end of year 4

You have been instructed to complete a market valuation on a single tenant commercial property located in Mt Wellington for mortgage security purposes. The bank has specifically requested that you value this property having regard to the two most common investment approaches - Direct Capitalisation and Discounted Cash Flow. Your client has advised you that the building has been leased today, to a national tenant for a nine-year term at a gross commencement income of $457,000 per annum plus GST paid yearly in advance, which in your opinion is above market rental levels. However, the tenant was given a rental incentive, equivalent to nine months' rent, as a cash payment on commencement, to go towards office fit out works. You have been provided with the following assumptions/ determinants: Valuation Date: DCF Period: Discount rate: Terminal yield: Today Five years 6.50% 8.00% Market Derived capitalisation rate: Current assessed net market rental: Building net lettable area: Unrecovered OPEX: 7.50% $361,000 per annum plus GST and OPEX 3,100 square metres $25 per square metre plus GST Rental incentives (on commencement): $284,625 plus GST Rental reviews: Ratchet clause: Market rental increase: OPEX increase: Purchase price: Capital expenditure: Two yearly to market Soft 2.00% p.a. compounding 1.50% p.a. compounding $4,900,000 plus GST $79,000 plus GST at the end of year 4

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 3P
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You have been instructed to complete a market valuation on a single tenant commercial property located in Mt Wellington for mortgage security purposes. The bank has specifically requested that you value this property having regard to the two most common investment approaches - Direct Capitalisation and Discounted Cash Flow. Your client has advised you that the building has been leased today, to a national tenant for a nine-year term at a gross commencement income of $457,000 per annum plus GST paid yearly in advance, which in your opinion is above market rental levels. However, the tenant was given a rental incentive, equivalent to nine months' rent, as a cash payment on commencement, to go towards office fit out works. You have been provided with the following assumptions/ determinants: Valuation Date: DCF Period: Discount rate: Terminal yield: Today Five years 6.50% 8.00% Market Derived capitalisation rate: Current assessed net market rental: Building net lettable area: Unrecovered OPEX: 7.50% $361,000 per annum plus GST and OPEX 3,100 square metres $25 per square metre plus GST Rental incentives (on commencement): $284,625 plus GST Rental reviews: Ratchet clause: Market rental increase: OPEX increase: Purchase price: Capital expenditure: Two yearly to market Soft 2.00% p.a. compounding 1.50% p.a. compounding $4,900,000 plus GST $79,000 plus GST at the end of year 4
Transcribed Image Text:You have been instructed to complete a market valuation on a single tenant commercial property located in Mt Wellington for mortgage security purposes. The bank has specifically requested that you value this property having regard to the two most common investment approaches - Direct Capitalisation and Discounted Cash Flow. Your client has advised you that the building has been leased today, to a national tenant for a nine-year term at a gross commencement income of $457,000 per annum plus GST paid yearly in advance, which in your opinion is above market rental levels. However, the tenant was given a rental incentive, equivalent to nine months' rent, as a cash payment on commencement, to go towards office fit out works. You have been provided with the following assumptions/ determinants: Valuation Date: DCF Period: Discount rate: Terminal yield: Today Five years 6.50% 8.00% Market Derived capitalisation rate: Current assessed net market rental: Building net lettable area: Unrecovered OPEX: 7.50% $361,000 per annum plus GST and OPEX 3,100 square metres $25 per square metre plus GST Rental incentives (on commencement): $284,625 plus GST Rental reviews: Ratchet clause: Market rental increase: OPEX increase: Purchase price: Capital expenditure: Two yearly to market Soft 2.00% p.a. compounding 1.50% p.a. compounding $4,900,000 plus GST $79,000 plus GST at the end of year 4
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