An office building should last 60 years, but this owner will sell it at 20 years for 40% of its construction cost. For the first 20 years it can be leased as Class A space, which is all this owner operates. When the building is sold, the land’s cost will be recovered in full.
$2.2 Million Land
$4.1 Million Building
$640,000 Annual operating and maintenance
4% Annual property taxes and insurance (% of initial investment)
If the owner wants a 12% rate of return, what is the required monthly leasing cost?
Assuming that the building is vacant 5% of the time, what is the required monthly lease?
What is an example monthly cost per square foot for Class A space in your community?