You are in charge of leasing space at a shopping center on Famous Street for a major Philadelphia Area The building you are working on is currently fully leased but one space will soon become available as the existing tenant decided to vacate. You received the following two proposals from two potential tenants. Which proposal should you choose?

Proposal 1: This prospective tenant is offering to sign a 5-year gross lease. The rent will be $24.00 per square foot each year with no annual increases. In addition to the rent, the prospective tenant will pay 2% of its annual sales which are expected to be $50 per square foot. Expenses are estimated to be $9.00 per square foot during the first year and increase by $1.00 per square foot pear year thereafter.

Proposal 2: This prospective tenant is offering to sign a 5-year modified-gross lease. The rent will be $22.00 per square foot in the first year and increase by the full amount of any change in the CPI (inflation) after the first year with an expense stop at $9.00 per square foot. The CPI is expected to be 3.00% per year. Expenses are estimated to be $9.00 per square foot during the first year and increase by $1.00 per square foot pear year thereafter. In addition, the lessor will provide this tenant with tenant improvements of $5.00 per square foot (payable in the first year).

Note: Assume that these two tenants have the same credit worthiness and as such would command the same rate of return of 10%.

	a.	Proposal 1
	b.	Proposal 2
	c.	Either Proposal 1 or 2, as there is no difference between them
	d.	Neither Proposal 1 or 2, as they fail to protect the owner against inflation
	e.	Unable to determine due to insufficient information