What was the decline in value of a small office building after on-street parking was made illegal, assuming a capitalization rate of 8%?

To determine the decline in the value of the small office building after on-street parking was made illegal, you need to consider how the loss of parking affects the income potential of the property and subsequently its overall value. The capitalization rate (cap rate) is used to estimate the value of income-producing properties based on their earning potential.

The formula to calculate property value using cap rate is:

Value = Net Operating Income (NOI) / Capitalization Rate

If we assume that the new situation (where on-street parking is no longer available) results in a decrease in the net operating income, this reduced income must be reflected in the value calculation.

Let's say the net operating income decreases due to fewer tenants being willing to rent office space without nearby parking. This decrease in income leads to a decline in property value, calculated as the reduction in NOI divided by the cap rate.

If the decline in NOI is $12,000, for example, under an 8% cap rate, the calculation for the decline in value would be:

Decline in Value = $12,000 / 0.08 = $150,000.

This demonstrates why a decline of $150,000 accurately reflects the impact of losing on-street parking under