You receive an inquiry from a quirky paper supply company about leasing some office space from you.

After meeting the unconventional Regional Manager and the Assistant* Regional Manager, you figure this paper company is likely to last three seasons at best so you decide on a three-year lease.

The Recoverable Operating Expenses in your building are currently equal to $10 per square foot per year and you expect them to increase by $2 per square foot per year.

Based on your market research, a discount rate of 8% is appropriate for any present value calculations you may undertake.

For your convenience, we have created an Excel Template for this question

Q1(d). Your friend, who has considerable experience in the office investments in your market, advises you to consider a base rent of $22 per square foot but add an annual CPI Adjustment (increasing the rent by the rate of CPI growth of the previous 12 months) and an Expense Stop of $10.00 per square foot.

Doing some research, you find that experts predict that the Consumer Price Index will grow by 5% per year for the foreseeable future. As a reminder, the CPI Adjustment does not affect the first year.

Calculate the Net Rent and Effective Net Rent by completing

Template for Qid Year 1 Year 2 Year 3 | Gross Rent Less: Operating Expenses Add: Recoveries Net Rent Average Net Rent Discount Rate Present Value Effective Net Rent