BC 2011 10 17 Regular Meeting - Laserfiche WebLink

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October 17, 2011 (Regular Meeting) Page 747 Improvement types used with Model 04 are office buildings and vary from a minimum of $4.50 to $20.00 per square foot per year. Generally high rise office buildings demand a higher rent per square foot, due to the annual expenses running close to $25.00 per square foot per year. Improvement types used with Model 06 are typically industrial, manufacturing, distribution or storage facilities. The market rent for buildings of this nature run from $1.00 to $15.00 per square foot for typical good warehouse construction; however, the range can vary from $1.00 for mostly storage up to $18.00 for a warehouse that has more than 500 office space in a good location. These rates will be developed further throughout the revaluation project and established for the County. IDENTIFY VACANCY AND COLLECTION LOSS The amount of income which can be produced is determined not only by the size of the property but also the degree to which the property is utilized. Commonly, most properties experience some vacancies throughout the year along with collection losses. This amount is usually expressed as a percentage of the possible gross. These measures of losses from vacancies and collections are particularly applicable to multi - tenant properties. There are basically three sources of such information; past experience of the subject, market experience of similar properties, and other published studies and reports. IDENTIFY OPERATING EXPENSES In order to estimate a net annual income it is necessary to calculate the amount that goes to the purchaser- investor after deductions for the actual operation of the property are made. These deductions are called operating expenses, however, these deductions DO NOT include mortgage payments and depreciation. There are three basic categories of operating expenses. FIXED EXPENSES These are expenses which vary very little, if at all, with occupancy from year to year and have to be paid whether the property is occupied or vacant. Taxes and Property Insurance are the two major items in this category. It must be remembered that these expenses need be deducted only insofar as they are an expense incurred by the property. VARIABLE EXPENSES Included in this category are such expenditures as management fees, payroll and personnel, supplies and materials, utilities, grounds care, etc. These tend to vary, at least in part, with the percentage of occupancy. Much depends on the type of property, the climate and the landlord - tenant relationship as to expenses incurred. REPAIRS AND REPLACEMENTS These items vary from year to year and tend to be concentrated in some years. For valuation purposes it is necessary to spread the cost of certain major repairs and /or replacements over their useful life. Dividing the replacement cost for each category by the forecast useful life yields an annual payment to cover replacement. Some typical items would be air conditioners, heating systems and roof covers. SOURCE OF OPERATING EXPENSE DATA There are basically three sources for providing information on operating expenses of properties. Sources are past experience of the subject, market experience of similar properties and published studies and reports on local, regional and national fronts. NET OPERATING INCOME Net operating income (NOI) is the annual dollar amount that a property is capable of producing under typical conditions and is equal to the gross income less vacancy and collection losses and operating expenses. Example: Gross Income (20 apt. @ $1200 /year) $24,000 Less 5% Vacancy & Collection 1,200