Question
You are the owner of a 200,000 square foot office building designed for and leased to a single corporate tenant. Operating Expenses are currently total
You are the owner of a 200,000 square foot office building designed for and leased to a single corporate tenant.
Operating Expenses are currently total $9.75 per square foot, of which $1.25 represents the cost of heating. The tenant's current expense stop is $6.50 per square foot, and operating expenses are expected to grow at 2.5% per year.
The lease expires in two years. You are considering an upgrade to the heating system which will cost $125,000 to install and will reduce heating costs by $0.10 per square foot per year.
(1) What is the total dollar proft to the landlord during the remainder of the current lease? (2) What are the total energy savings over the expected 15 year life of the upgraded system? (3) How much of that will pass to the landlord?
Note: The Expense Stop is a fixed amount of operating expense above which the tenant is responsible to pay. Thus, the landlord is responsible to pay for all operating expenses below the Expense Stop, while the tenant is responsible for any amount above the Expense Stop.
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