Suppose that your 12,000 SF building was leased for $10 per square foot two years ago on a

five-year lease (i.e., three years remaining). Your tenant wants to negotiate a buyout (i.e.,

get out of the lease) but comparable space is now renting for only $8 per square foot. At

what price should you allow the existing tenant to buyout the lease if your discount rate is

12%?

market rent = 96,000

contract rent = 120,000

differential = 24,000 for 3 years at 12% = $ 57,644

Where did the $57,644 come from?