In Exhibit 9–10, we provide a brief illustration of the pro forma cash flow for a
distribution/warehouse with a total of 100,000 square feet of rentable area, 10 percent of
which is office and showroom space. It will have a single tenant/user who has agreed to
pay (a) $6.60 per square foot in rent and (b) a portion of additional operating
expenses/fees related to maintenance and repair of the property equal to $1.00 per square
foot per year. In this case, the lease agreement indicates that the tenant will be billed for
a share of these expenses by the owner, who will, in turn, make payments to service
providers. As can be seen in the exhibit, operating expenses for general maintenance,
repairs, and lease expenses total $150,000. As a result, all expenses will not be recovered
from the tenant, who is expected to pay an expense recovery totaling $100,000. The
difference is the net amount of expenses that must be paid by the owner. However,
property taxes and insurance will be billed, or “passed through” to the tenant, then paid
by the owner. Other outlays shown in Exhibit 9–10 include: CAPEX/Improve allowance
outlays for (1) tenant improvements prior to occupancy of the warehouse, and (2) a capital
allowance for future capital expenses.
As was the case for office properties (see Exhibit 9–9), this pro forma is for the base
year only. A more thorough investment analysis would include multiyear pro forma