Income and Expense Analysis

Chapter 21 Income and Expense Analysis

Estimating and Adjusting Market Rent • Lessee and lessor are typically motivated. • Both parties are well-informed. • A reasonable time is allowed for exposure. • The rent is in terms of cash in U.S. dollars. • The rental amount represents normal consideration for the property leased, unaffected by special fees. Chapter 21

Income and Expense Data • Rent • Rent concessions • Division of expenses • Renewal options • Expense cap and expense stop clauses • Escalation clauses • Expense recovery clauses • Purchase options • Escape, kick-out, or buyout clauses • Continued occupancy clauses • Tenant improvements • Noncompete, dark store, and exclusive use clauses Chapter 21

Lease Data • Date of lease • Description of the leased premises • Lease terms, rental rate, and payment • Tenant-installed trade fixtures • Revaluation clauses • Signage Chapter 21

Developing Reconstructed Operating Statements • Estimating potential gross income • From comparable leases • From the current subject property leases • From subject history • Estimating vacancy and collection loss • From comparable leases • From subject history Chapter 21

Lease Comparison Grid Chapter 21

Developing Reconstructed Operating Statements, continued • Estimating operating expenses • From comparable leases • From subject history • From contractors’ estimates • Estimating tenant improvement expenses • Estimating leasing commissions Chapter 21

Developing Reconstructed Operating Statements, continued • Calculating net operating income • Additional calculations • Estimating mortgage debt service • Estimating equity dividend • Estimating net income ratio Chapter 21

Income Capitalization Approach Calculations for Eight-Unit Property Chapter 21

Problems • Suggested solutions begin on page 429. Chapter 21

Problem 1—Suggested Solution Chapter 21

Problem 2—Suggested Solution Chapter 21

Income and Expense Analysis