Post on 23-Feb-2016
description
transcript
250,000 square foot suburban office building
LL & T negotiating
10,000 square foot lease
Cas
e St
udy
First Things First
• Break out your calculator• Remove the remainder of the pages in this
chapter and sort them into separate piles:– These instructions– The Landlord’s Initial Proposal– The Tenant’s Counter Proposal– The Landlord’s Counter Proposal– The various spreadsheets (end of chapter)
Landlord’s Initial Proposal• Rent = $25 psf gross - 3% annual increases • One month free rent (month 1)• OEs estimated at $10 per square foot in year 1 with 2.5% annual
increases• Leasing commission is 6% of gross rent
– LL representative (2%) and T representative (4%)• Lease legal fees = $1 psf
• Some owners include lease legal fees – others do not• We will not include lease legal fees
• Construction allowance = $20 psf• Landlord to contribute $0.20 psf for space planning• Owner expects a 9% return
Tenant Prospect:Address:Prepared By:Prepared/Revised On:Suite:Square Feet:Base Rent:Annual Rent Increase:Estimated Soft Costs of Construction - (Space Planning):Estimated TI Costs:Owner's Expected Rate of Return
Basic Lease Parameters - Landlord's Initial OfferDate Entry Only in White Cells
per square foot percent
per square foot percent
per square foot
Review the lease parameters of the Landlord’s Initial Offer and enter the data into the appropriate cells in your spreadsheet.
Tenant Prospect:Address:Prepared By:Prepared/Revised On:Suite: 200 Square Feet: 10,000 Base Rent: $25.00 Annual Rent Increase: 3.00%Estimated Soft Costs of Construction - (Space Planning): $ 0.20 Estimated TI Costs: $20.00 Owner's Expected Rate of Return 9%
per square foot percent
per square foot percent
per square foot
Basic Lease Parameters - Landlord's Initial Offer
Fluid Dynamics, Inc.10800 Coslett Boulevard
<Your Name><Today's Date>
Date Entry Only in White Cells
Rent Table - Landlord's Initial Offer
Rent Increase Per Year Year 1 Year 2 Year 3 Year 4 Year 5 Total 3% 3% 3% 3%
Base RentLess: Free Rent (Negative)
Total Income
Calculate Base Rent
Rent Table - Landlord's Initial Offer
Rent Increase Per Year Year 1 Year 2 Year 3 Year 4 Year 5 Total 3% 3% 3% 3%
Base Rent $ 250,000 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,327,284 Less: Free Rent (Negative)
Total Income
Base Rent
Rent Table - Landlord's Initial Offer
Rent Increase Per Year Year 1 Year 2 Year 3 Year 4 Year 5 Total 3% 3% 3% 3%
Base Rent $ 250,000 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,327,284 Less: Free Rent (Negative)
Total Income
Calculate Free Rent
Rent Table - Landlord's Initial Offer
Rent Increase Per Year Year 1 Year 2 Year 3 Year 4 Year 5 Total 3% 3% 3% 3%
Base Rent $ 250,000 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,327,284 Less: Free Rent (Negative) $ (20,833) $ - $ - $ - $ - $ (20,833)
Total Income
Free Rent
Rent Table - Landlord's Initial Offer
Rent Increase Per Year Year 1 Year 2 Year 3 Year 4 Year 5 Total 3% 3% 3% 3%
Base Rent $ 250,000 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,327,284 Less: Free Rent (Negative) $ (20,833) $ - $ - $ - $ - $ (20,833)
Total Income
Calculate Total Income
Rent Table - Landlord's Initial Offer
Rent Increase Per Year Year 1 Year 2 Year 3 Year 4 Year 5 Total 3% 3% 3% 3%
Base Rent $ 250,000 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,327,284 Less: Free Rent (Negative) $ (20,833) $ - $ - $ - $ - $ (20,833)
Total Income $ 229,167 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,306,451
Total Income
Rent Table - Landlord's Initial Offer
Rent Increase Per Year Year 1 Year 2 Year 3 Year 4 Year 5 Total 3% 3% 3% 3%
Base Rent $ 250,000 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,327,284 Less: Free Rent (Negative) $ (20,833) $ - $ - $ - $ - $ (20,833)
Total Income $ 229,167 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,306,451
Leasing Costs Year 1 Year 2 Year 3 Year 4 Year 5 TotalLeasing Commission % (Each Year) 6% 6% 6% 6% 6%
Tenant Improvement (Negative) Leasing Commission (Negative)
Soft Costs of Construction (Negative)
Total Leasing Costs
Calculate TI Allowance
Rent Table - Landlord's Initial Offer
Rent Increase Per Year Year 1 Year 2 Year 3 Year 4 Year 5 Total 3% 3% 3% 3%
Base Rent $ 250,000 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,327,284 Less: Free Rent (Negative) $ (20,833) $ - $ - $ - $ - $ (20,833)
Total Income $ 229,167 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,306,451
Leasing Costs Year 1 Year 2 Year 3 Year 4 Year 5 TotalLeasing Commission % (Each Year) 6% 6% 6% 6% 6%
Tenant Improvement (Negative) $ (200,000) $ (200,000)Leasing Commission (Negative)
Soft Costs of Construction (Negative) Total Leasing Costs $ (200,000) $ - $ - $ - $ - $ (200,000)
TI Allowance
Rent Table - Landlord's Initial Offer
Rent Increase Per Year Year 1 Year 2 Year 3 Year 4 Year 5 Total 3% 3% 3% 3%
Base Rent $ 250,000 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,327,284 Less: Free Rent (Negative) $ (20,833) $ - $ - $ - $ - $ (20,833)
Total Income $ 229,167 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,306,451
Leasing Costs Year 1 Year 2 Year 3 Year 4 Year 5 TotalLeasing Commission % (Each Year) 6% 6% 6% 6% 6%
Tenant Improvement (Negative) $ (200,000) $ (200,000)Leasing Commission (Negative)
Soft Costs of Construction (Negative) Total Leasing Costs $ (200,000) $ - $ - $ - $ - $ (200,000)
Calculate Leasing Commission
Rent Table - Landlord's Initial Offer
Rent Increase Per Year Year 1 Year 2 Year 3 Year 4 Year 5 Total 3% 3% 3% 3%
Base Rent $ 250,000 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,327,284 Less: Free Rent (Negative) $ (20,833) $ - $ - $ - $ - $ (20,833)
Total Income $ 229,167 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,306,451
Leasing Costs Year 1 Year 2 Year 3 Year 4 Year 5 TotalLeasing Commission % (Each Year) 6% 6% 6% 6% 6%
Tenant Improvement (Negative) $ (200,000) $ (200,000)Leasing Commission (Negative) $ (78,387) $ (78,387)
Soft Costs of Construction (Negative) Total Leasing Costs $ (278,387) $ - $ - $ - $ - $ (278,387)
Leasing Commission
Rent Table - Landlord's Initial Offer
Rent Increase Per Year Year 1 Year 2 Year 3 Year 4 Year 5 Total 3% 3% 3% 3%
Base Rent $ 250,000 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,327,284 Less: Free Rent (Negative) $ (20,833) $ - $ - $ - $ - $ (20,833)
Total Income $ 229,167 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,306,451
Leasing Costs Year 1 Year 2 Year 3 Year 4 Year 5 TotalLeasing Commission % (Each Year) 6% 6% 6% 6% 6%
Tenant Improvement (Negative) $ (200,000) $ (200,000)Leasing Commission (Negative) $ (78,387) $ (78,387)
Soft Costs of Construction (Negative) Total Leasing Costs $ (278,387) $ - $ - $ - $ - $ (278,387)
Calculate Space Planning Cost
Rent Table - Landlord's Initial Offer
Rent Increase Per Year Year 1 Year 2 Year 3 Year 4 Year 5 Total 3% 3% 3% 3%
Base Rent $ 250,000 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,327,284 Less: Free Rent (Negative) $ (20,833) $ - $ - $ - $ - $ (20,833)
Total Income $ 229,167 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,306,451
Leasing Costs Year 1 Year 2 Year 3 Year 4 Year 5 TotalLeasing Commission % (Each Year) 6% 6% 6% 6% 6%
Tenant Improvement (Negative) $ (200,000) $ (200,000)Leasing Commission (Negative) $ (78,387) $ (78,387)
Soft Costs of Construction (Negative) $ (2,000) $ (2,000)
Total Leasing Costs $ (280,387) $ - $ - $ - $ - $ (280,387)
Space Planning Cost
Rent Table - Landlord's Initial Offer
Rent Increase Per Year Year 1 Year 2 Year 3 Year 4 Year 5 Total 3% 3% 3% 3%
Base Rent $ 250,000 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,327,284 Less: Free Rent (Negative) $ (20,833) $ - $ - $ - $ - $ (20,833)
Total Income $ 229,167 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,306,451
Leasing Costs Year 1 Year 2 Year 3 Year 4 Year 5 TotalLeasing Commission % (Each Year) 6% 6% 6% 6% 6%
Tenant Improvement (Negative) $ (200,000) $ (200,000)Leasing Commission (Negative) $ (78,387) $ (78,387)
Soft Costs of Construction (Negative) $ (2,000) $ (2,000)
Total Leasing Costs $ (280,387) $ - $ - $ - $ - $ (280,387)
Cash FlowCash Flow Year 1 Year 2 Year 3 Year 4 Year 5 Total
Annual Cash Flow
Cumulative Total
Calculate Annual Cash Flow
Rent Table - Landlord's Initial Offer
Rent Increase Per Year Year 1 Year 2 Year 3 Year 4 Year 5 Total 3% 3% 3% 3%
Base Rent $ 250,000 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,327,284 Less: Free Rent (Negative) $ (20,833) $ - $ - $ - $ - $ (20,833)
Total Income $ 229,167 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,306,451
Leasing Costs Year 1 Year 2 Year 3 Year 4 Year 5 TotalLeasing Commission % (Each Year) 6% 6% 6% 6% 6%
Tenant Improvement (Negative) $ (200,000) $ (200,000)Leasing Commission (Negative) $ (78,387) $ (78,387)
Soft Costs of Construction (Negative) $ (2,000) $ (2,000)
Total Leasing Costs $ (280,387) $ - $ - $ - $ - $ (280,387)
Cash FlowCash Flow Year 1 Year 2 Year 3 Year 4 Year 5 Total
Annual Cash Flow $ (51,220) $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,026,064
Cumulative Total
Annual Cash Flow
Rent Table - Landlord's Initial Offer
Rent Increase Per Year Year 1 Year 2 Year 3 Year 4 Year 5 Total 3% 3% 3% 3%
Base Rent $ 250,000 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,327,284 Less: Free Rent (Negative) $ (20,833) $ - $ - $ - $ - $ (20,833)
Total Income $ 229,167 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,306,451
Leasing Costs Year 1 Year 2 Year 3 Year 4 Year 5 TotalLeasing Commission % (Each Year) 6% 6% 6% 6% 6%
Tenant Improvement (Negative) $ (200,000) $ (200,000)Leasing Commission (Negative) $ (78,387) $ (78,387)
Soft Costs of Construction (Negative) $ (2,000) $ (2,000)
Total Leasing Costs $ (280,387) $ - $ - $ - $ - $ (280,387)
Cash FlowCash Flow Year 1 Year 2 Year 3 Year 4 Year 5 Total
Annual Cash Flow $ (51,220) $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,026,064
Cumulative Total
Calculate Cumulative Cash Flow
Rent Table - Landlord's Initial Offer
Rent Increase Per Year Year 1 Year 2 Year 3 Year 4 Year 5 Total 3% 3% 3% 3%
Base Rent $ 250,000 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,327,284 Less: Free Rent (Negative) $ (20,833) $ - $ - $ - $ - $ (20,833)
Total Income $ 229,167 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,306,451
Leasing Costs Year 1 Year 2 Year 3 Year 4 Year 5 TotalLeasing Commission % (Each Year) 6% 6% 6% 6% 6%
Tenant Improvement (Negative) $ (200,000) $ (200,000)Leasing Commission (Negative) $ (78,387) $ (78,387)
Soft Costs of Construction (Negative) $ (2,000) $ (2,000)
Total Leasing Costs $ (280,387) $ - $ - $ - $ - $ (280,387)
Cash FlowCash Flow Year 1 Year 2 Year 3 Year 4 Year 5 Total
Annual Cash Flow $ (51,220) $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,026,064
Cumulative Total $ (51,220) $ 206,280 $ 471,505 $ 744,687 $ 1,026,064
Cumulative Cash Flow
Net Effective RentNet Effective Rent
Simple Payback
Simple Payback (Years) years
Return on Investment (ROI)Cumulative Return on Investment (ROI)
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)Net Present Value of this Cash Flow
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
Cash Inflow - Year 1
Cash Inflow - Year 2
Cash Inflow - Year 3
Cash Inflow - Year 4
Cash Inflow - Year 5
Internal Rate of Return
Calculate Net Effective Rent
Calculation: Cumulative cash flow / square feet / lease term (years)
Net Effective RentNet Effective Rent $ 20.52
Simple Payback
Simple Payback (Years) years
Return on Investment (ROI)Cumulative Return on Investment (ROI)
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)Net Present Value of this Cash Flow
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
Cash Inflow - Year 1
Cash Inflow - Year 2
Cash Inflow - Year 3
Cash Inflow - Year 4
Cash Inflow - Year 5
Internal Rate of Return
Net Effective Rent
Calculation: Cumulative cash flow / square feet / lease term (years)• $1,026,064 / 10,000 square feet / 5 years = $ 20.52
Net Effective RentNet Effective Rent $ 20.52
Simple Payback
Simple Payback (Years) years
Return on Investment (ROI)Cumulative Return on Investment (ROI)
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)Net Present Value of this Cash Flow
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
Cash Inflow - Year 1
Cash Inflow - Year 2
Cash Inflow - Year 3
Cash Inflow - Year 4
Cash Inflow - Year 5
Internal Rate of Return
Calculate Simple Payback
Calculation Step 1 - (determine average annual income) - Total income / lease term (years) - $1,306,284 / 5 years = $261,257
Calculation Step 2 - Total leasing costs / average annual income = simple payback - $280,387 / $261.257 = 1.07 years
Net Effective RentNet Effective Rent $ 20.52
Simple Payback
Simple Payback (Years) years
Return on Investment (ROI)Cumulative Return on Investment (ROI)
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)Net Present Value of this Cash Flow
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
Cash Inflow - Year 1
Cash Inflow - Year 2
Cash Inflow - Year 3
Cash Inflow - Year 4
Cash Inflow - Year 5
Internal Rate of Return
Calculate Simple Payback
Calculation Step 1 - (determine average annual income) - Total income / lease term (years) - $1,306,284 / 5 years = $261,257
Calculation Step 2 - Total leasing costs / average annual income = simple payback - $280,387 / $261.257 = 1.07 years
Net Effective RentNet Effective Rent $ 20.52
Simple Payback
Simple Payback (Years) 1.07 years
Return on Investment (ROI)Cumulative Return on Investment (ROI)
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)Net Present Value of this Cash Flow
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
Cash Inflow - Year 1
Cash Inflow - Year 2
Cash Inflow - Year 3
Cash Inflow - Year 4
Cash Inflow - Year 5
Internal Rate of Return
Simple Payback
Calculation Step 1 - (determine average annual income) - Total income / lease term (years) - $1,306,284 / 5 years = $261,257
Calculation Step 2 - Total leasing costs / average annual income = simple payback - $280,387 / $261.257 = 1.07 years
Net Effective RentNet Effective Rent $ 20.52
Simple Payback
Simple Payback (Years) 1.07 years
Return on Investment (ROI)Cumulative Return on Investment (ROI)
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)Net Present Value of this Cash Flow
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
Cash Inflow - Year 1
Cash Inflow - Year 2
Cash Inflow - Year 3
Cash Inflow - Year 4
Cash Inflow - Year 5
Internal Rate of Return
Calculate ROI
Calculation: (Total cash flow of each year – operating expenses ($10 psf x 10,000 sq ft = $100,000) - total leasing costs) / total leasing costs
Net Effective RentNet Effective Rent $ 20.52
Simple Payback
Simple Payback (Years) 1.07 years
Return on Investment (ROI)Cumulative Return on Investment (ROI) 87.62%
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)Net Present Value of this Cash Flow
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
Cash Inflow - Year 1
Cash Inflow - Year 2
Cash Inflow - Year 3
Cash Inflow - Year 4
Cash Inflow - Year 5
Internal Rate of Return
ROI
Calculation: (Total cash flow of each year – operating expenses ($10 psf x 10,000 sq ft = $100,000) - total leasing costs) / total leasing costs
Net Effective RentNet Effective Rent $ 20.52
Simple Payback
Simple Payback (Years) 1.07 years
Return on Investment (ROI)Cumulative Return on Investment (ROI) 87.62%
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)Net Present Value of this Cash Flow $727,798
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
Cash Inflow - Year 1
Cash Inflow - Year 2
Cash Inflow - Year 3
Cash Inflow - Year 4
Cash Inflow - Year 5
Internal Rate of Return
Calculate Net Present ValueCalculated for You
Excel Formula - =NPV(discount rate, (total income Year 1, Year 2, etc.) - landlord costs• =NPV(9%, ($229,167 + $257,500 + $265,225 + $273,182 + $281,37) - $280,387 = $727,797
Net Effective RentNet Effective Rent $ 20.52
Simple Payback
Simple Payback (Years) 1.07 years
Return on Investment (ROI)Cumulative Return on Investment (ROI) 87.62%
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)Net Present Value of this Cash Flow $727,798
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow $ (280,387)
Cash Inflow - Year 1 $ 229,167
Cash Inflow - Year 2 $ 257,500
Cash Inflow - Year 3 $ 265,225
Cash Inflow - Year 4 $ 273,182
Cash Inflow - Year 5 $ 281,377
Internal Rate of Return 83.99%
Calculate IRRCalculated for You
Excel Formula - =IRR(cash outflow + annual cash flow Year 1, Year 2, etc.)
As a group, review the rent table and financial parameters for this
deal
Lease Commission Options
Rent Tables Year 1 Year 2 Year 3 Year 4 Year 5 Totals
Base Rent (net of concessions) $ 229,167 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,306,451
Leasing Commission Option #1 - Flat Commission Year 1 Year 2 Year 3 Year 4 Year 5 Totals
Leasing Commission Rate 6% 6% 6% 6% 6% Leasing Commission $ 13,750 $ 15,450 $ 15,914 $ 16,391 $ 16,883 $ 78,387
Leasing Commission Option #1 - Staggered Commission
Year 1 Year 2 Year 3 Year 4 Year 5 TotalsLeasing Commission Rate Leasing Commission
Calculate Alternate Commissions
Lease Commission Options
Rent Tables Year 1 Year 2 Year 3 Year 4 Year 5 Totals
Base Rent (net of concessions) $ 229,167 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,306,451
Leasing Commission Option #1 - Flat Commission Year 1 Year 2 Year 3 Year 4 Year 5 Totals
Leasing Commission Rate 6% 6% 6% 6% 6% Leasing Commission $ 13,750 $ 15,450 $ 15,914 $ 16,391 $ 16,883 $ 78,387
Leasing Commission Option #1 - Staggered Commission
Year 1 Year 2 Year 3 Year 4 Year 5 TotalsLeasing Commission Rate 8% 6% 6% 5% 5% Leasing Commission
Calculate Alternate Commissions
Lease Commission Options
Rent Tables Year 1 Year 2 Year 3 Year 4 Year 5 Totals
Base Rent (net of concessions) $ 229,167 $ 257,500 $ 265,225 $ 273,182 $ 281,377 $ 1,306,451
Leasing Commission Option #1 - Flat Commission Year 1 Year 2 Year 3 Year 4 Year 5 Totals
Leasing Commission Rate 6% 6% 6% 6% 6% Leasing Commission $ 13,750 $ 15,450 $ 15,914 $ 16,391 $ 16,883 $ 78,387
Leasing Commission Option #1 - Staggered Commission
Year 1 Year 2 Year 3 Year 4 Year 5 TotalsLeasing Commission Rate 8% 6% 6% 5% 5% Leasing Commission $ 18,333 $ 15,450 $ 15,914 $ 13,659 $ 14,069 $ 77,425
Alternate Commissions
For Discussion
What lease commission structures are used in your area?
Rent Table - Tenant's Counter Offer
Year 1 Year 2 Year 3 Year 4 Year 5 TotalRent Increase Per Year 3% 3% 3% 3%
Base Rent $ 230,000 $ 236,900 $ 244,007 $ 251,327 $ 258,867 $ 1,221,101 Less: Free Rent (Negative) $ (57,500) $ - $ - $ - $ - $ (57,500)
Net Operating Income $ 172,500 $ 236,900 $ 244,007 $ 251,327 $ 258,867 $ 1,163,601
Leasing Costs Year 1 Year 2 Year 3 Year 4 Year 5 Total
Leasing Commission Per Year 6% 6% 6% 6% 6%Tenant Improvement (Negative) $ (250,000) $ - $ - $ - $ - $ (250,000)Leasing Commission (Negative) $ (69,816) $ - $ - $ - $ - $ (69,816)
Soft Costs of Construction (Negative) $ (2,000) $ - $ - $ - $ - $ (2,000)
Total $ (321,816) $ - $ - $ - $ - $ (321,816)
Cash Flow Year 1 Year 2 Year 3 Year 4 Year 5 Total
Annual Cash Flow $ (149,316) $ 236,900 $ 244,007 $ 251,327 $ 258,867 $ 841,785
Cumulative Total $ (149,316) $ 87,584 $ 331,591 $ 582,918 $ 841,785
Tenant’s Counter Offer
Changes proposed by the tenant: o Starting rent of $23 per square foot with 3% annual increaseso Three (3) months of free rent o $25 per square foot tenant improvement allowance
Net Effective Rent Net Effective Rent $ 16.84
Simple Payback
Simple Payback (Years) 1.38 years
Return on Investment (ROI)Cumulative Return on Investment (ROI) 6.21%
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)
Net Present Value of this Cash Flow $570,545
Internal Rate of Return (IRR) CalculationInitial Cash Outflow $ (321,816)
Cash Inflow - Year 1 $ 172,500
Cash Inflow - Year 2 $ 236,900
Cash Inflow - Year 3 $ 244,007
Cash Inflow - Year 4 $ 251,327
Cash Inflow - Year 5 $ 258,867
Internal Rate of Return 60.25%
Tenant’s Counter Offer
For Discussion
Review the rent table and financial parameters of the Tenant’s Counter Offer
Would the asset manager do this deal?
Rent Table - Landlord's Counter Offer
Year 1 Year 2 Year 3 Year 4 Year 5 TotalRent Increase Per Year 3% 3% 3% 3%
Base Rent $ 240,000 $ 247,200 $ 254,616 $ 262,254 $ 270,122 $ 1,274,193 Less: Free Rent (Negative) $ (40,000) $ - $ - $ - $ - $ (40,000)
Net Operating Income $ 200,000 $ 247,200 $ 254,616 $ 262,254 $ 270,122 $ 1,234,193
Leasing Costs Year 1 Year 2 Year 3 Year 4 Year 5 Total
Leasing Commission Per Year 6% 6% 6% 6% 6%Tenant Improvement (Negative) $ (225,000) $ - $ - $ - $ - $ (225,000)Leasing Commission (Negative) $ (74,052) $ - $ - $ - $ - $ (74,052)
Soft Costs of Construction (Negative) $ - $ - $ - $ - $ - $ -
Total $ (299,052) $ - $ - $ - $ - $ (299,052)
Cash Flow Year 1 Year 2 Year 3 Year 4 Year 5 Total
Annual Cash Flow $ (99,052) $ 247,200 $ 254,616 $ 262,254 $ 270,122 $ 935,141
Cumulative Total $ (99,052) $ 148,148 $ 402,764 $ 665,019 $ 935,141
Landlord’s Counter Offer
Changes proposed by the landlord: o Starting rent of $24 per square foot with 3% annual increaseso Two (2) months of free rent o $22.50 per square foot tenant improvement allowance
Net Effective Rent
Net Effective Rent $ 18.70
Simple Payback
Simple Payback (Years) 1.21 years
Return on Investment (ROI)Cumulative Return on Investment (ROI) 45.51%
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)
Net Present Value of this Cash Flow $650,457
Internal Rate of Return (IRR) CalculationInitial Cash Outflow $ (299,052)
Cash Inflow - Year 1 $ 200,000
Cash Inflow - Year 2 $ 247,200
Cash Inflow - Year 3 $ 254,616
Cash Inflow - Year 4 $ 262,254
Cash Inflow - Year 5 $ 270,122
Internal Rate of Return 71.66%
Landlord’s Counter Offer
As a group, review the rent table and financial parameters for this
deal
What’s Next?
Parties will continue to go back and forth with counter offers until they:
Reach a dealor
Agree that no deal can be done