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INCOME APPROACH (cont.) <br /> I have made a diligent search in an attempt to fmd any rental information of similar <br /> facilities, and apparently none exist. The Z.B. Falcons Club located much further west on <br /> Western Avenue, the M.R. Falcons on Bendix Drive, and the Elks Lodge on McKinley <br /> Highway all own their own building. If any such rentals of a similar facility exist, I have <br /> been unable to locate them. <br /> I have recognized that the potential renters of a facility such as the subject is <br /> extremely limited, for the above mentioned reasons, and the tenant could only be attracted <br /> by a reasonable rental. <br /> Considering the overall size of the subject building and its limited potential, I have <br /> concluded that a rental of$2.00 per sq. ft., Triple Net would be a realistic rental for the <br /> subject. Since the building contains a gross area of 32,518 sq. ft (Approximately), at a <br /> rental of$2.00 per sq.ft.,the potential annual income would be$65,036. <br /> Vacancy and Rent Loss <br /> If this building was to be vacated tomorrow and offered for rent, it is my opinion that <br /> finding a tenant would be a lengthy procedure, and it could be reasonably assumed that it <br /> might be vacant for some time before a tenant could be found. I have estimated this <br /> potential Vacancy and Rent Loss at 30%. This would not be an easy building to rent. <br /> Expenses <br /> As previously indicated, this would be leased on a Triple Net basis, meaning that the - <br /> tenant would be responsible for taxes, insurance, maintenance, heating, snow removal, <br /> decorating, etc. However, typically major items such as roof replacement, HVAC <br /> replacement, and any other items of major expense will not be handled by the tenant. <br /> Therefore,it is necessary to set up Reserves for Repair and Replacement on the assumption <br /> at the end of the lease period the owner will have to replace major items. <br /> Based upon the age and general condition of the building,Reserves of$10,000.00 per <br /> year would seem to be an appropriate amount. This replacement alone could be an <br /> expensive item,and it was noted that the roof leaks. <br /> Explanation of the Capitalization Rate: <br /> Selection of the Capitalization Rate varies considerably depending upon a number of <br /> factors such as the age of the property, condition of the property, the current economic <br /> conditions both local and national, and of significant importance the anticipated demand for <br /> leasing such a facility. <br /> 27 <br />