Question

a 1,500-square-foot office space is leased at $12.00 square foot. the space is vacant one month out of the year. office expenses are $6.50 per square foot and an expense stop is set at $6.00 per square foot. what is the annual net operating income? (assume no additional expenses during the month of vacancy)

Answer 1

To find the annual net operating income, calculate the total lease revenue minus the vacancy, subtract expenses covered by the tenant ($0.50 per square foot above the $6.00 expense stop), resulting in an annual net operating income of $197,250.

Step-by-step explanation:

The student is interested in calculating the annual net operating income for a 1,500-square-foot office space that is leased at $12.00 per square foot and vacant for one month per year, considering office expenses and an expense stop. To calculate this, we follow a few steps:

1. Calculate the total annual lease revenue minus the revenue for the vacant month.
2. Calculate the total office expenses for the year.
3. Apply the expense stop to determine the actual expenses paid by the tenant.
4. Subtract the adjusted expenses from the adjusted lease revenue to find the annual net operating income.

Step 1: Annual lease revenue without the vacancy is:
1,500 sq ft x $12.00/sq ft x 11 months = $198,000.

Step 2: Total office expenses are:
1,500 sq ft x $6.50/sq ft = $9,750.

Step 3: Expenses above the expense stop ($6.00 per sq ft) are covered by the tenant:
$6.50/sq ft - $6.00/sq ft = $0.50/sq ft, so the total is 1,500 sq ft x $0.50/sq ft = $750.

Step 4: The annual net operating income is:
$198,000 (adjusted lease revenue) - $750 (adjusted expenses) = $197,250.