A 150,000-SF office building has a NNN lease providing a constant (flat) rent of $20/SF per year. (With a triple-net lease, you can assume the rent equals the NOI.)

The lease has five years before it expires (i.e., assume the next payment comes in one year (year 1), and there are four more annual payments after that under the present lease).

Rents on similar leases being signed today are $22/SF at year 0. You expect market rents on new leases to grow at 2.5 percent per year for existing buildings.

You expect to release the building in year 6 after the current lease expires, but only after experiencing an expected vacancy of six months during year 6, and after spending $10/SF in tenant improvements (Tls). The new 5-year lease will have a NNN flat rent at the estimated year-6 market rent.

In year 10, you expect to sell the building at a price equal to 10 times the then-prevailing year-10 rent in new triple-net leases. Based on survey information about typical going-in IRRs prevailing currently in the market for this type of property, you think the market would require a 12 percent expected return for this building.

A. What is the NPV of an investment in this property if the purchase price at year 0 is $30 million?

B. What will be the IRR at that price?

C. What would be the cap rate if the price were $30 million?