Question
Consider a commercial property currently in the final stages of development. You expect the 150,000 square foot building to be ready for occupancy in one
Consider a commercial property currently in the final stages of development. You expect the 150,000 square foot building to be ready for occupancy in one years. The first lease is expected to be signed in one years, require payments of $22 per square foot, and will require rents to be paid annually (in advance). Leases will be for 4 years with a fixed (intra-lease) rent. Expected rental growth between leases is 3% per year, with no vacancies expected in between leases. Suppose the intra-lease (low-risk) discount rate is 8% per year, while the inter-lease (high risk) discount rate is 12% per year. What should be the price (expected present value) of this space?
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