AG HBU Formulas and Calculations

Question 1

Straight Line formula

Answer 1

y = a + bx

Self-Study booklet, Nr. 23

Question 1

Rentable Area of an office building

Answer 1

Exterior Dimensions of each level
- Exterior Walls
- Vertical penetrations (stairs, elevator shafts, and mechanical flues)
= Rentable Area of an Office Building

(do NOT consider restrooms, common areas, lobby, open decks)

Self-Study Booklet, Nr. 26

Question 2

There are currently 5,000,000 square feet of office space in the metropolitan area, and the average vacancy rate is 10%. Employment in the same area is 100,000 jobs, of which 20% are in office-using employment classes. What is the estimated number of square feet of occupied office space per worker?
A. 45
B. 50
C. 225
D. 250

Answer 2

C. 225

(5,000,000×0.90)÷(100,000×0.20)

Self-Study Booklet, Nr. 28
Course handbook guidance: IV.D.2 (not found)

SF occupied / in office employees

4,500,000 SF = 20,000 employees
X SF = 1 employee?

Question 2

The supply of office space in a community is 150,000 square feet, and the current occupancy rate is 85%. One new building of 25,000 square feet is to be constructed within the next five years. Current employment in the community is 6,250, of which 12% is office employment. If the number of office-using jobs increases by 100 over the next five years and the square feet of occupied space per employee does not change, what will the occupancy rate be in five years?

Answer 2

A. 82.6%

Current office employment: 6,250 × 0.12 = 750
Current occupied office: 150,000 × 0.85 = 127,500
Current office demand per office employee:
127,500 SF = 750 jobs
X SF = 1 job
127,500 ÷ 750 = 170 SF
Office employment in 5 years: 750 + 100 = 850
Office demand in 5 years: 850 jobs × 170 SF = 144,500 sq. ft.
Office supply in 5 years: 150,000 + 25,000 = 175,000 sq. ft.
Occupancy rate in 5 years:
Supply 175,000 SF = 100 %
Demand 144,500 SF = x
144,500 sq. ft. demand ÷ 175,000 sq. ft. supply = 0.826

Course handbook guidance: Part 12, item II.B

Self Study, nr. 29

Question 3

Current office demand per office employee:

Answer 3

Current occupied office SF /
Current office employment

(Total occupied SF = total office jobs
X SF = 1 job)

Course handbook guidance: Part 12, item II.B

Self Study, nr. 29

Question 4

Formula for office demand in 5 years if the current office demand per office employee does not change:

Answer 4

Office employment in 5 years x Current office demand per office employee

Course handbook guidance: Part 12, item II.B

Self Study, nr. 29

Question 5

Based on the information for an office market in the following table, what is residual demand for office space in Year 5? (Assume that the average square feet occupied per office worker remains the same.)

A. −12,222
B. −6,667
C. 6,667
D. 12,222

Answer 5

D. 12,222

Current office demand: 300,000 × 0.92 = 276,000
Current office demand per office employee: 276,000 ÷ 1,380 = 200
Office demand in 5 years: 1,540 × 200 = 308,000
Supportable (adjusted) demand in 5 years: 308,000 ÷ 0.90 (equilibrium
occupancy) = 342,222
Residual demand: 342,222 − 330,000 (office supply in 5 years) = 12,222

Course handbook guidance: Part 12, item II.B
Self Study Nr. 30

Question 6

There are currently 750,000 square feet of office space in the subject’s node. The average occupancy rate is 90%. The subject is 90,000 square feet and is 5% vacant. What is the subject’s current capture rate within its node?
A. 11.4%
B. 12.0%
C. 12.7%
D. 13.0%

Answer 6

C. 12.7%(90,000×0.95)÷(750,000×0.90)

Course handbook guidance: Part 12, item III.B
Self Study Nr. 31

Question 7

Given the information in the table below, what is the increase in occupied space over five years?

Answer 7

A. 125,000
(1,450,000×0.92)
− (1,300,000×0.93)

Course handbook guidance: Part 11, item IV.D
Self Study Nr. 32

Question 8

The market area currently includes 11,456 apartment units. There are four projects proposed for construction over the next three years. The following is a summary of the four projects and their probabilities:

What is the estimated number of apartment units in three years?
A. 11,456
B. 11,859
C. 11,963
D. 12,262

Answer 8

C. 11,963
[11,456
+(230×1.0)
+(116×0.75)
+(300×0.50)
+(160×0.25)]

Course handbook guidance: Part 9, item I.B and Part 12, item I.B

Self Study Nr. 33

Question 9

What are the steps to solve for Feasibility Rent?

Answer 9

Part 13, page 367

Question 10

A 1.0-acre site is zoned for office use and is physically suitable for an office building. Given the following information, what is the proper conclusion regarding financial feasibility of office use based on feasibility rent?

A. Feasibility rent exceeds current market rent; project is currently financially feasible.
B. Feasibility rent exceeds current market rent; project is not currently financially feasible.
C. Feasibility rent is less than current market rent; project is currently financially feasible.
D. Feasibility rent is less than current market rent; project is not currently financially feasible.

Answer 10

B. Feasibility rent exceeds current market rent; project is not currently financially feasible.

Course handbook guidance: Part 13, item V.B

Question 11

NPV

Answer 11

Net Present Value
= PV - CO
= Present Value of all expected investment benefits
Minus
Present Value of initial cash outlay
incl purchase price and/or construction costs

Question 12

The appraiser concludes that the value of a 30-year-old, two-story office building containing 30,000 rentable square feet, including the site, is $900,000. The value of the subject property as renovated would be $1.4 million. Renovation costs would be $400,000.
Is the renovation financially feasible?

Answer 12

The renovation is financially feasible since the profitability index > 1.

Also, NPV > 0 because the present value of the investment ($1,400,000) exceeds the negative cash flows (value under current use plus construction costs = $1,300,000).

Part 13, page 371

Question 13

A duplex apartment is located on a 0.50-acre site zoned for office. An appraiser identifies three alternative uses, as follows:
ƒ Continue the duplex use, which brings net operating income of $12,000 per year. The capitalization rate for the duplex use is 5.5%.
ƒ Convert the duplex to a two-suite office building at a cost of $75,000 (including entrepreneurial incentive). The net operating income would increase to $24,000. The capitalization rate for the converted office building would be 7.5%.
ƒ Demolish the duplex. If vacant, the site would have a value of $13.50 per square foot as an office site. Demolition cost is $15,000.

What is the highest and best use of the property?
A. continued use as a duplex
B. conversion to a two-suite office building
C. demolition
D. cannot be determined without additional information

Answer 13

C. demolition

Value (duplex use):
$12,000 ÷ 0.055 = $218,182
Value (office conversion use): $24,000 ÷ 0.075 = $320,000 − $75,000 = $245,000
Value (demolition scenario): 43,560 × 0.50 × $13.50 = $294,030 − $15,000 = $279,030

Course handbook guidance: Part 14, item V

(Value = NOI / Rate)