1. Suppose a 20-year lease with annual rental payments (due at the end of each year).If the first year rent is $30 per square foot and the contract calls for the rent to increase by 5% each year, if the opportunity cost of capital (discount rate) is 11%, what is the present value of this lease?

2. A landlord has offered a tenant a 20-year lease with annual net rental payments of $30/SF in arrears. The appropriate discount rate is 8%. The tenant has asked the landlord to come back with another proposal, with a lower initial rent in return for annual step-ups of 4% per year. What should the landlord's proposed starting rent be?

3. A condo has 50 identical units that rent at $1700/month with building operating expenses paid by the landlord equal to $600/mo. On average, there is 3% vacancy. You expect both rents and operating expenses to grow at a rate of 6% per year. The discount rate is 10% per year. How much is the property worth?

4. Consider an investor with a 7 year investment horizon, evaluating an income producing property.The property may currently be purchased for $1,800,000.Last year's NOI of $160,000 is projected to grow at 4% annually into the foreseeable future.The reinvestment rate is 10%. At the end of the investor's holding period, cap rates are expected to 9% on properties of this nature.

1) What is the total return offered by this investment?

2) Decompose the expected return on our 5 year investment property.

5. Suppose expected first lease rent is $30/SF/yr net, on a 1200,000 SF building.The first lease will be signed in one year with rent paid annually, in advance.Leases will be for 5 years with a fixed rent.Expected rental growth between leases is 3%/yr, with no vacancies expected in between leases. Suppose the intra-lease (low risk) discount rate is 8%/yr, while the inter-lease (high risk) discount rate is 11%. What is the PV of this space?

Quiz 3: Please work on the following problems: 1. Suppose a 20-year lease with annual rental payments (due at the end of each year). If the first year rent is $30 per square foot and the contract calls for the rent to increase by 5% each year, if the opportunity cost of capital (discount rate) is 11%, what is the present value of this lease? 2. A landlord has offered a tenant a 20-year lease with annual net rental payments of $30/SF in arrears. The appropriate discount rate is 8%. The tenant has asked the landlord to come back with another proposal, with a lower initial rent in return for annual step-ups of 4% per year. What should the landlord's proposed starting rent be? 3. A condo has 50 identical units that rent at $1700/month with building operating expenses paid by the landlord equal to $600/mo. On average, there is 3% vacancy. You expect both rents and operating expenses to grow at a rate of 6% per year. The discount rate is 10% per year. How much is the property worth? 4. Consider an investor with a 7 year investment horizon, evaluating an income producing property. The property may currently be purchased for $1,800,000. Last year's NOI of $160,000 is projected to grow at 4% annually into the foreseeable future. The reinvestment rate is 10%. At the end of the investor's holding period, cap rates are expected to 9% on properties of this nature. 1) What is the total return offered by this investment? 2) Decompose the expected return on our 5 year investment property. 5. Suppose expected first lease rent is $30/SF/yr net, on a 1200,000 SF building. The first lease will be signed in one year with rent paid annually, in advance. Leases will be for 5 years with a fixed rent. Expected rental growth between leases is 3%/yr, with no vacancies expected in between leases. Suppose the intra-lease (low risk) discount rate is 8%/yr, while the inter-lease (high risk) discount rate is 11%. What is the PV of this space