Jefferson Center property valuation and investment analysis

Property Management

In real estate one of the basic foundations of the business, is being able to understand the income stream for the property into the future. As this will tell you how the underling investment will perform during this time. In the case of the Jefferson Center, it is going through a unique transformation, with a number of large corporations relocating to nearby properties (such as: Blue Cross / Blue Shield and Niagara Mohawk). This is important, because once this kind of economic development begins to occur, is when the value of the property can increase dramatically along with the gross income. To determine the impact on the Jefferson Center requires: conducting an analysis of the potential value of the property and the income stream (for a holding period ending in 2015). This will be accomplished by: examining the expected net operating income, estimating the property value (based on the income stream), various physical plant issues facing the property, if the estimates are reasonable, the before tax gain from a possible sale and the benefits from selling the property in the next five years. Together, these different elements will provide the greatest insights, as to the possible income and growth potential of the Jefferson Center.

Expected Net Operating Income

Despite the recent recession that has taken place, the Jefferson Center has been able to withstand the implosion in prices. Given the fact that they are located in a major area of redevelopment and the city has been focusing on the connective corridor, means that the entire area will experience long-term price appreciation. The connective corridor is where the city and Syracuse University are purchasing / developing the various downtown properties (for renovation through a community organizations). ("Impressive in Syracuse," 2009) This approach is important, because it has helped the city to be able to revitalize the downtown area, despite the changes that are taking place in the economy. When you compare this to the net operating income, it is clear that the building is 80% full (with 16 out 20 units leased). This means that the net income could be somewhat volatile over the next five years, as it would range from: $312,781.40 to $419,235.09. The below table illustrates the net annual operating income for each of the next five years.

Net Operating Income

Net Rental Income

Year

Income

2011

$391,000.00

2012

$443.406.00

2013

$449,000.00

2014

$319,489.00

2015

$394,456.00

Expenses

2011

2012

2013

2014

2015

Op. Expenses

$6,476.10

$6,670.38

$6,870.49

$7,288.90

$7,520.10

Insurance

$450.00

$472.00

$496.12

$520.93

$546.97

Taxes

$1,680.00

$1,750.08

$1,785.80

$1,821.50

$1,857.94

Ten. Improve

$49,000.00

$10,400.00

$0.00

$17,300.00

$48,150.00

Broker Fee

$20,612.50

$20,612.50

$20,612.50

$20,612.50

$20,612.50

Total

$78,218.60

$39,904.96

$29,764.91

$47,543.83

$78,687.51

Net Operating Income

Year

Net Operating Income

2011

$312,781.40

2012

$403,501.04

2013

$419,235.09

2014

$271,945.17

2015

$315, 768.45

Next consider a sale and the gain on sale proceeds before tax

If the building was to be held for total of five years, it would generate a pretax profit of $258,484.65. This number was calculated by taking 15.0% and multiplying it by $1,723,231.00 (the present value of the property).

Considering your personal vision and your family considerations, are you going to benefit from the sale of this property over the next five years? How?

Yes. There are several ways that you can benefit from the property. The most obvious would be the potential appreciation that can be realized, from efforts to revitalize the area. This will create an increase in the value of the property over the long-term. Especially when you consider the fact: that Blue Cross / Blue Shield and Niagara Mohawk have just relocated to nearby properties. This will have ripple effects in area, as their presence and efforts to redevelop the will continue to increase the value of the property.

At the same time, the long-term leases and the ones that are coming up for renewal will allow for periodic increases in the rent. This will help to improve the operating income and the overall returns. In many ways, this is tied directly to what is taking place in the area. Where, the various effects will increase demand for a host of commercial rental properties. At which point, the average lease rate for office space will increase.

Clearly, the Jefferson Center has the potential to generate consistent long-term income and growth. As the building is located in an area where realization is occurring and a number of large employers are relocating. These facts mean that demand for a number of properties will increase, affecting leasing rates and prices.