A building owner is evaluating the following alternatives for leasing space in a

Question

A building owner is evaluating the following alternatives for leasing space in an office building for the next 5 years: (4pts) 12. Net lease with steps: Rent will be $15 per square foot in the first year and will increase by s1.50 per sq. ft. each year until the end of the lease. All operating expenses paid by the tenant Net lease with CPI adjustments: The rent will be $16 per sq. ft. for the first year. After the first year, the rent will increase by the amount in the CPI·The CPI is expected to increase 3% a year. a) b) Calculate the effective rent for both scenarios using a 12% discount rate, which one is better for the tenan

Explanation / Answer

(1) Net Lease with Step 1/(1+.12)^n 12% Year Rent Discount rate PV 1         15.00 0.892857143         13.39 2         16.50 0.797193878         13.15 3         18.00 0.711780248         12.81 4         19.50 0.635518078         12.39 5         21.00 0.567426856         11.92 NPV 3.604776202         63.67 Effective Rent=63.67/3.604776         17.66 (2) Net Lease with CPI 1/(1+.12)^n 12% Year Rent Discount rate PV 1         16.00 0.892857143         14.29 2         16.48 0.797193878         13.14 3         16.97 0.711780248         12.08 4         17.48 0.635518078         11.11 5         18.01 0.567426856         10.22 NPV 3.604776202         60.83 Effective Rent=60.83/3.64776202         16.88 Option 1 Net lease with step is better as it have higher effective rent than option 2

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.