Robert Scola
Professor Morris
Real Estate Financial Analysis
5 January 2024
Assignment 1
I would recommend that Grognar proceed with selecting the Butcher over the Blacksmith.
Firstly, the incremental increases in rent offered by the Blacksmith are not significant enough to
justify choosing it, unless Grognar foresees a substantial economic downturn that would cause rents
to drop significantly in the next five years or more. Moreover, even when factoring in the Operating
Expenses, Grognar would still incur losses compared to the Butcher's lease until Year 3, where the
Butcher would be paying a net rate of $18 per square foot (after deducting 10% of Operating
Expenses for this stall from the original $20 per square foot). Additionally, when considering the
Tenant Improvement Allowance (TIA) and the lower initial rental rate offered by the Blacksmith, it
becomes apparent that this option is not financially viable, as it would result in approximately
$5,000 less revenue for Grognar by Year 5.
Butcher:
Blacksmith:
Delta:
Y0:
-10,000
-15,000
-5,000
Y1:
18,000
17,000
-6,000
Y2:
18,000
17,500
-6,500
Y3:
18,000
18,000
-6,500
Y4:
18,000
18,500
-6,000
Y5:
18,000
19,000
-5,000