Laserfiche WebLink
In regards to the projected net income, generally speaking downtown San Leandro area is untested <br />for construction of a multi -story Class A office building. More specifically, the Corporation Yard <br />site itself has been vacant for more than 10 years. It is difficult to project Class A office rents for <br />this specific Project. The projected rents at $27 per sq.ft. full service are based on the Developer's <br />reported negotiations with two key tenants that will occupy 90,000 sq.ft. comprising more than <br />two-thirds of the rentable space (90,000 sq.ft. out of 128,000 sq.ft.). The commitments of these <br />two tenants are critical to the Project being financed. Therefore, we have accepted the <br />Developer's projection of rents. <br />Additional considerations in the projection of the net operating income include: <br />■ A vacancy and collection allowance is estimated at 5% of gross potential income <br />generated by the office tenants (including the anchor tenants) and the restaurant. <br />■ Operating expenses of $8.50 per sq.ft. per year for the office space, including <br />general operating expenses, management and capital replacement reserves. <br />As shown in Table 2, gross potential revenues are estimated at $3.50 million. The resulting net <br />operating income after the above assumptions is estimated at $2.24 million. <br />C. Residual Value <br />Table 3 presents the residual value for the Site conveyed to the Developer. <br />The residual land value is based upon the capitalized value of the development upon stabilization. <br />The major assumption inherent in this approach is that the Developer is concerned with the <br />relationship between the value of the completed Project and the development costs. To determine <br />the residual value, the capitalized value is reduced by the estimated development costs, the <br />imputed costs of sale, and a reasonable developer's profit. <br />Using a 9% capitalization rate against stabilized net operating income of $2.24 million results in a <br />capitalized value of $24.89 million. When this value is reduced by imputed costs of sale equal to <br />3% of value, a Developer's profit of 12% of value and the estimated development costs of $18.85 <br />million, the residual value of the development rights being conveyed is estimated to be <br />$2,265,000. <br />D. Reuse Value <br />In summary, the reuse value is $2,265,000. <br />!"J, <br />Keyser Marston Associates, Inc. <br />19096.001\002-002.doc Page 15 <br />