Refer to the effective rent example on page 275 in the book that is replicated in the Ch9 Eff.Rent tab in the Excel workbook provided on the Web site.
a. Suppose the CPI is expected to increase by 4 percent starting in year 2 and remain at 4 percent per year rather than the original pattern that is 2 percent in year 2, 3 percent in year 3, 4 percent in year 4, and 5 percent in year 5. What leases will be affected? What is the new effective rent on these leases?
b. Supposed that in addition to the change in part (a), expenses increase by $1 per year instead of $.50. What leases will be affected? What is the new effective rent on these leases?

Reference example

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1. Net Lease with Steps Year $10.00 $12.00 Net rent $11.00 $13.00 $14.00 Average rent $12.00 Present value 44.77 Effective rent 11.81 2. Net Lease with Free Rent (concessions) Year 2 $14.50 Net rent s0.00 $15.50 $16.50 $17.50 Average rent $12.80 Present value 45.76 Effective rent 12.07 3. Net Lease with 100% CPI Adjustment Year 2 Expected CPI Net rent NA 2.00% 3.00% 4.00% 5.00% $11.00 $11.22 $11.56 $12.02 $12.62 Average rent $11.68 Present value 44.00 11.61 Effective rent 4. Gross Lease Year Gross rent $17.50 $17.50 $17.50 $17.50 $17.50 6.00 Less expenses Net rent 4.00 4.50 5.00 5.50 13.50 13.00 12.50 12.00 11.50 Average rent $12.50 Present value 47.74 Effective rent 12.59 5. Gross Lease with Expense Stop at 54.00 Year Gross rent Less experses $15.50 4.00 $15.50 4.50 $15.50 5.00 $15.50 5.50 $15.50 6.00 0.00 0.50 1.00 1.50 2.00 11.50 Plus recoveries Net rent 11.50 11.50 11.50 11.50 Average rent $11.50 Present value 43.59 Effective rent 11.50 6. Gross Lease with Expense Stop at $4.00 and CPI Adjustment Year 2 Expected CPI Gross rent Less experses Plus recoveries 2.00% 3.00% 4.00% 5.00% NA $15.23 5.00 $16.64 6.00 $14.50 4.00 $14.79 4.50 $15.84 5.50 0.00 0.50 1.00 1.50 2.00 Net rent 10.50 10.79 11.23 11.84 12.64 Average rent $11.40 Present value 42.84 Effective rent 11.30