REAL 4000 Real Estate Principles Maymester 2020 Calculating Effective Rent Problem Set

Suppose that you have been offered a 10-year lease with the following terms:

• 30,000 square feet of space

• Year 1 rent is $15 per square foot per year. Rent will escalate at 2.5% per year.

• Year 1 operating expenses are expected to be $3 per square foot per year. Operating

  expenses are expected to escalate at a rate of 3% per year.

• The landlord will provide a tenant improvement allowance of $20 per square foot.

• The landlord is offering the following concessions: Years 1 and 2 will be rent-free.

What is the effective rent for this lease? Assume a discount rate of 8% per year.