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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 and the restaurant. <br /> • Operating expenses of 51.9 million per year for the office space, including general <br /> operating expenses, management and capital replacement reserves. <br /> As shown in Table 2, the resulting net operating income after the above assumptions is estimated <br /> at 33,178,000. <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 33,178,000 results in a <br /> capitalized value of 335.3 million. When this value is reduced by imputed costs of sale, a <br /> Developer's profit of 12% of value and the estimated development costs of 327,345,500, the <br /> residual value of the development rights being conveyed is estimated to be 52,500,000. <br /> D. Reuse Value <br /> In summary, the reuse value is 32,500,000. <br /> 293 <br /> Keyser Marston Associates. Inc. <br /> 190966.0261002 -001.doc Page 15 <br />