An owner of an office building (Lessor) is currently negotiating a six year lease with a financial services company (Lessee) for 15,000 rentable square feet of space Lessees offer The financial services company would like a base rent of $21 per square foot per year with step ups of $2 per square foot per year beginning the second year Downtown Covina Office Building owner would provide full service under the lease terms Building owners counter offer The owner of the office building believes that the $21 lease is too low and is trying to offer a counter offer which includes a base rent of $26 per square foot per year with the same step ups Under this counter offer the office building owner would also provide the financial services company with immediate $80,000 move in allowance and immediate $20,000 in tenant improvements (TIs), as well as offer the last year of the lease at 50 discount Assuming that the office building owner believes that his required rate of return on investment should be 14 percent per year, is the counter offer a better proposal for the building owner What about for financial services company Show and explain all calculations Financial services companys counter counter offer The company informs the office building owner that it has 1 year remaining on its existing 13,000 square foot lease in an older building at $26 per square foot per year The financial services company is therefore proposing a counter counter offer it is willing to pay the office building owner $27 per square foot per year with the step ups (same as above) on the new lease, but is demanding that the office building owner buy out the old lease in lieu of the moving allowance and TIs Should the office building owner agree to this lease buyout counter counter offer, or insist on the lease at $26 per square foot per year with the step ups, move in allowance and Tis, and discounted last year of the lease In other words, which one of the two is better for the building owner Show and explain all calculations

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Posted on Oct 06, 2024

An owner of an office building (Lessor) is currently negotiating a six-year lease with a financial services company (Lessee) for 15,000 rentable square feet of

An owner of an office building (Lessor) is currently negotiating a six-year lease with a financial services company (Lessee) for 15,000 rentable square feet of space.

Lessees offer: The financial services company would like a base rent of $21 per square foot per year with step-ups of $2 per square foot per year beginning the second year. Downtown Covina Office Building owner would provide full service under the lease terms.

Building owners counter-offer: The owner of the office building believes that the $21 lease is too low and is trying to offer a counter-offer which includes a base rent of $26 per square foot per year with the same step-ups. Under this counter-offer the office building owner would also provide the financial services company with immediate $80,000 move-in allowance and immediate $20,000 in tenant improvements (TIs), as well as offer the last year of the lease at 50% discount.

Assuming that the office building owner believes that his required rate of return on investment should be 14 percent per year, is the counter-offer a better proposal for the building owner? What about for financial services company? Show and explain all calculations.
Financial services companys counter-counter-offer: The company informs the office building owner that it has 1 year remaining on its existing 13,000-square-foot lease in an older building at $26 per square foot per year. The financial services company is therefore proposing a counter-counter-offer: it is willing to pay the office building owner $27 per square foot per year with the step-ups (same as above) on the new lease, but is demanding that the office building owner buy out the old lease in lieu of the moving allowance and TIs. Should the office building owner agree to this lease buyout counter-counter-offer, or insist on the lease at $26 per square foot per year with the step-ups, move-in allowance and Tis, and discounted last year of the lease? In other words, which one of the two is better for the building owner? Show and explain all calculations.