Question 3.5: Analysis of Building Space Cost Estimates The detailed desig...
The detailed design of the commercial building described in Example 3-2 affects the utilization of the gross square feet (and, thus, the net rentable space) available on each floor. Also, the size and location of the parking lot and the prime road frontage available along the property may offer some additional revenue sources. As project manager, analyze the potential revenue impacts of the following considerations. The first floor of the building has 15,000 gross square feet of retail space, and the second floor has the same amount planned for office use. Based on discussions with the sales staff, develop the following additional information:
(a) The retail space should be designed for two different uses—60% for a restaurant operation (utilization = 79%, yearly rent = $ 23 / sq . ft.) and 40% for a retail clothing store (utilization = 83%, yearly rent = $18/sq.ft.).
(b) There is a high probability that all the office space on the second floor will be leased to one client (utilization = 89 %, yearly rent = $14/sq.ft.).
(c) An estimated 20 parking spaces can be rented on a long -term basis to two existing businesses that adjoin the property . Also, one spot along the road frontage can be leased to a sign company, for erection of a billboard, without impairing the primary use of the property.
Based on this information, you estimate annual project revenue (\hat{R}) as
\hat{R} = W(r_{1})(12)+ \Upsilon (r_{2})(12) + \sum\limits_{j=1}^{3}{S_{j}(u_{j})(d_{j})}where W = number of parking spaces;
ϒ = number of billboards;
r_{1} = rate per month per parking space = $ 22;
r_{2} = rate per month per billboard = $65;
j = index of type of building space use;
S_{j} = space (gross square feet) being used for purpose j;
u_{j} = space j utilization factor (% net rentable );
d_{j} = rate per (rentable) square foot per year of building space used for purpose j.
Then,
\hat{R} = [20($22)(12) + 1($65)(12)]+[9,000(0.79)($23) + 6,000(0.83)($18) + 15,000(0.89)($14)]
\hat{R} = $6,060 + $440,070 = $446,130.
A breakdown of the annual estimated project revenue shows that
1.4% is from miscellaneous revenue sources;
98.6% is from leased building space.
From a detailed design perspective, changes in annual project revenue due to changes in building space utilization factors can be easily calculated. For example, an average 1% improvement in the ratio of rentable space to gross square feet would change the annual revenue ( \Delta \hat{R} ) as follows:
\Delta \hat{R} = \sum\limits_{j=1}^{3}{S_{j}(u_{j}+ 0.01 )(d_{j}) – (\$446,130 − \$6,060)}
\ \ \ \ \ \ = $445,320 − $440,070
\ \ \ \ \ \ = $5,250 per year.