You have an opportunity to buy a 50,000 SF building for $10,000,000. The value add that you can immediately bring is to bring a 50,000 SF tenant with you into the acquisition. The lease would be 5 years, TI would be $25/SF, and the Rent will be $35.00/SF escalating at 3% a year. Commission will be 6% or $11.15/SF. Operating Costs will be $14.00.

Total contract rent for the 5 years is $9,290,987.67.

What is the original cost of (building + CapEX)/SF

Question

You have an opportunity to buy a 50,000 SF building for $10,000,000.  The value add that you can immediately bring is to bring a 50,000 SF tenant with you into the acquisition.  The lease would be 5 years, TI would be $25/SF, and the Rent will be $35.00/SF escalating at 3% a year.  Commission will be 6% or $11.15/SF.  Operating Costs will be $14.00.

Total contract rent for the 5 years is $9,290,987.67.

What is the original cost of (building + CapEX)/SF

BlackTom AI · Accepted Answer

Building cost per square foot is $10,000,000 ÷ 50,000 SF = $200.00/SF.

Relevant points:
- "CapEX" here is the immediate capital expenditures tied to the acquisition: tenant improvements (TI) and leasing commission. Operating costs are recurring expenses and are not part of initial CapEX.
- Commission is specified as 6% (and is given equivalently as $11.15/SF). That 6% is applied to total contract rent over the 5-year lease to produce the commission amount.

Step-by-step calculations:
1. Building cost per SF:
   - 10,000,000 / 50,000 = 200.00 $/SF

2. Confirm commission per SF from total contract rent:
   - Total contract rent over 5 years = 9,290,987.67
   - Commission amount = 6% × 9,290,987.67 = 0.06 × 9,290,987.67 = 557,459.2602 ≈ $557,459.26
   - Commission per SF = 557,459.26 / 50,000 = 11.149185204 ≈ $11.15/SF (matches the stated $11.15/SF)

3. CapEX per SF:
   - TI = $25.00/SF
   - Commission = $11.15/SF
   - Total CapEX/SF = 25.00 + 11.15 = 36.15 $/SF

4. Original cost (building + CapEX) per SF:
   - 200.00 + 36.15 = 236.15 $/SF

Why this is correct:
- The building purchase price gives the base $/SF. CapEX comprises the one-time TI and leasing commission costs, both stated per SF (or derivable from total rent). Operating costs and rent flows are ongoing items and do not increase the original capitalized cost of asset plus immediate capital expenditures.

Why other interpretations would be incorrect:
- Including operating costs ($14/SF) would wrongly mix recurring OpEx with CapEX.
- Using only TI ($25) and ignoring commission would understate CapEX by $11.15/SF.
- Using rent figures as an added cost per SF misunderstands income versus acquisition cost.

Conclusion: (Building + CapEX)/SF = $236.15/SF, which matches the provided answer.

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