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You want to purchase an office building in Brooklyn
You want to purchase an office building in Brooklyn. The property contains 27,500 square feet of rentable space and is currently occupied by multiple tenants each with differing maturities on their respective leases. No lease is currently shorter than 1 year. The annual rent in the 1st year of ownership is $42.50/sq ft. The vacancy rate is 6.5%. You expect to incur collection losses (from tenant default) on 1.5% of the square feet during your first year.
1. What is the Potential Gross Income (PGI) for the first year?
2. What is the Effective Gross Income (EGI) for the first year?
3. If operating expenses are expected to be 40% of EGI, what is the Net Operating Income (NOI) generated by the property in the 1st year of ownership?
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