Part II

NPV and effective rent of a lease. You are the owner of an office building that has a net rentable area of 135,000 square feet. You are in the process of negotiating lease terms with a potential tenant who is interested in signing a lease to occupy 12,000 square feet. Given the terms listed below, determine the following for a gross and net lease. If you need additional help, please see the reference excel document Calculating the NPV of a Lease

a) NPV and NPV per square foot

b) Annual effective rent per square foot

c) As the landlord, which lease would you prefer?

Summary of lease terms (To answer Part II):

• Tenant RSF 12,000
• Total Net Rentable Area of Building 135,000
• Pro-Rata Share 8.89%
• Lease Commencement 7/1/2010
• Lease Expiration 6/30/2013
• Rent Step 3.00%
• Base Year 2010 (Gross Lease would have an expense stop in 2010)
• Tenant Improvements PSF $40.00
• Discount Rate 8.00%
• Leasing commissions $57,300

Assuming that total OPEX and RET are $14 Per Sq. Ft.

GROSS RENT would start at $40.00 Per Sq. Ft. and

Net Rent would start at $26.00 per Sq. Ft.

PROPERTY OPERATING EXPENSES

Inflation 2010 2011 2012 2013

Operating Expenses 3.00% $1,350,000 $1,390,500 $1,432,215 $1,475,181

Real Estate Tax Expense 3.00% $540,000 $556,200 $572,886 $590,073

Operating Expenses ($/ft) $10.00 $10.30 $10.61 $10.93

Real Estate Tax Expense ($/ft) $4.00 $4.12 $4.24 $4.37

Thanks