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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 non-credit tenants. <br />Operating expenses include an allowance of 5% of gross effective income for <br />management and capital replacements reserves. <br />As shown in Table 2, gross potential revenues for the retail space is estimated at $1.28 million. The <br />resulting net operating income after the above assumptions, is estimated at $1.19 million. <br />G Residual Value <br />Table 3 presents two methods of determining the residual value for the site conveyed to the <br />Developer, the return on investment method and the value upon completion method. <br />The first approach is based upon the return on total investment (R01). This approach provides an <br />estimation of the maximum warranted investment in the project based on the project producing a <br />reasonable developer return on total investment at stabilization. The maximum warranted investment <br />must be reduced by the estimated development costs to determine the residual value. <br />194 <br />KEYSER MARSTON ASSOCIATES I N C. <br />Page 13 <br />19100/0001-002.doc <br />