A 150,000 square foot office building has a triple-net lease providing a constant rent of $20/sq foot per year. The lease has 3 5 years before it expires assume the next payment comes in one year, and there are four more annual payment after that under the present lease. Rent son similar leases being signed today are $22/sq ft. You expect rents on new leases to grow at 2.5 % per year for existing buildings. You expect to release the building in the year 6 after the current lease expires, but only after experiencing a 6-month vacancy and after spending $10/ per square foot for tenant improvements. After 10 years, you expect to sell the building at a price equal to 10 times the then-prevailing rent in new NNN leases ($30,000,000). Based on a survey for this type of property, you think the market would require a 12 percent expected return for this building.

Assuming a NPV of $2,898,950

Whats the cap rate at the $30,000,000 price?