Case Study
250,000 square
foot suburban
office building
LL & T
negotiating
10,000 square
foot lease
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
Basic Lease Parameters - Landlord's Initial Offer
Date Entry Only in White Cells
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
per square foot
percent
per square foot
per square foot
percent
Review the lease parameters of the Landlord’s Initial Offer and enter the
data into the appropriate cells in your spreadsheet.
Basic Lease Parameters - Landlord's Initial Offer
Date Entry Only in White Cells
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
Fluid Dynamics, Inc.
10800 Coslett Boulevard
<Your Name>
<Today's Date>
200
10,000
$25.00
3.00%
$ 0.20
$20.00
9%
per square foot
percent
per square foot
per square foot
percent
Calculate Base Rent
Rent Table - Landlord's Initial Offer
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Total Income
Year 1
Year 2
3%
Year 3
3%
Year 4
3%
Year 5
3%
Total
Base Rent
Rent Table - Landlord's Initial Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Total Income
$
250,000 $
Year 2
3%
257,500 $
Year 3
3%
265,225 $
Year 4
3%
273,182 $
Year 5
3%
281,377
Total
$
1,327,284
Calculate Free Rent
Rent Table - Landlord's Initial Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Total Income
$
250,000 $
Year 2
3%
257,500 $
Year 3
3%
265,225 $
Year 4
3%
273,182 $
Year 5
3%
281,377
Total
$
1,327,284
Free Rent
Rent Table - Landlord's Initial Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Total Income
$
$
250,000 $
(20,833) $
Year 2
3%
257,500 $
- $
Year 3
3%
265,225 $
- $
Year 4
3%
273,182 $
- $
Year 5
3%
281,377 $
- $
Total
1,327,284
(20,833)
Calculate Total Income
Rent Table - Landlord's Initial Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Total Income
$
$
250,000 $
(20,833) $
Year 2
3%
257,500 $
- $
Year 3
3%
265,225 $
- $
Year 4
3%
273,182 $
- $
Year 5
3%
281,377 $
- $
Total
1,327,284
(20,833)
Total Income
Rent Table - Landlord's Initial Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Total Income
$
$
$
250,000 $
(20,833) $
229,167 $
Year 2
3%
257,500 $
- $
257,500 $
Year 3
3%
265,225 $
- $
265,225 $
Year 4
3%
273,182 $
- $
273,182 $
Year 5
3%
281,377 $
- $
281,377 $
Total
1,327,284
(20,833)
1,306,451
Calculate TI Allowance
Rent Table - Landlord's Initial Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Total Income
Leasing Commission % (Each Year)
Tenant Improvement (Negative)
Leasing Commission (Negative)
Soft Costs of Construction (Negative)
Total Leasing Costs
$
$
$
250,000 $
(20,833) $
229,167 $
Year 1
6%
Year 2
3%
257,500 $
- $
257,500 $
Leasing Costs
Year 2
6%
Year 3
3%
265,225 $
- $
265,225 $
Year 4
3%
273,182 $
- $
273,182 $
Year 5
3%
281,377 $
- $
281,377 $
Year 3
6%
Year 4
6%
Year 5
6%
Total
1,327,284
(20,833)
1,306,451
Total
TI Allowance
Rent Table - Landlord's Initial Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Total Income
Leasing Commission % (Each Year)
Tenant Improvement (Negative)
Leasing Commission (Negative)
Soft Costs of Construction (Negative)
Total Leasing Costs
$
$
$
$
$
250,000 $
(20,833) $
229,167 $
Year 1
6%
(200,000)
Year 2
3%
257,500 $
- $
257,500 $
Leasing Costs
Year 2
6%
(200,000) $
-
$
Year 3
3%
265,225 $
- $
265,225 $
Year 4
3%
273,182 $
- $
273,182 $
Year 5
3%
281,377 $
- $
281,377 $
Year 3
6%
Year 4
6%
Year 5
6%
-
$
-
$
Total
1,327,284
(20,833)
1,306,451
Total
-
$
(200,000)
$
(200,000)
Calculate Leasing Commission
Rent Table - Landlord's Initial Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Total Income
Leasing Commission % (Each Year)
Tenant Improvement (Negative)
Leasing Commission (Negative)
Soft Costs of Construction (Negative)
Total Leasing Costs
$
$
$
$
$
250,000 $
(20,833) $
229,167 $
Year 1
6%
(200,000)
Year 2
3%
257,500 $
- $
257,500 $
Leasing Costs
Year 2
6%
(200,000) $
-
$
Year 3
3%
265,225 $
- $
265,225 $
Year 4
3%
273,182 $
- $
273,182 $
Year 5
3%
281,377 $
- $
281,377 $
Year 3
6%
Year 4
6%
Year 5
6%
-
$
-
$
Total
1,327,284
(20,833)
1,306,451
Total
-
$
(200,000)
$
(200,000)
Leasing Commission
Rent Table - Landlord's Initial Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Total Income
$
$
$
Leasing Commission % (Each Year)
Tenant Improvement (Negative)
Leasing Commission (Negative)
Soft Costs of Construction (Negative)
$
$
Total Leasing Costs
$
250,000 $
(20,833) $
229,167 $
Year 1
6%
(200,000)
(78,387)
Year 2
3%
257,500 $
- $
257,500 $
Leasing Costs
Year 2
6%
(278,387) $
-
$
Year 3
3%
265,225 $
- $
265,225 $
Year 4
3%
273,182 $
- $
273,182 $
Year 5
3%
281,377 $
- $
281,377 $
Year 3
6%
Year 4
6%
Year 5
6%
-
$
-
$
Total
1,327,284
(20,833)
1,306,451
Total
-
$
$
(200,000)
(78,387)
$
(278,387)
Calculate Space Planning Cost
Rent Table - Landlord's Initial Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Total Income
$
$
$
Leasing Commission % (Each Year)
Tenant Improvement (Negative)
Leasing Commission (Negative)
Soft Costs of Construction (Negative)
$
$
Total Leasing Costs
$
250,000 $
(20,833) $
229,167 $
Year 1
6%
(200,000)
(78,387)
Year 2
3%
257,500 $
- $
257,500 $
Leasing Costs
Year 2
6%
(278,387) $
-
$
Year 3
3%
265,225 $
- $
265,225 $
Year 4
3%
273,182 $
- $
273,182 $
Year 5
3%
281,377 $
- $
281,377 $
Year 3
6%
Year 4
6%
Year 5
6%
-
$
-
$
Total
1,327,284
(20,833)
1,306,451
Total
-
$
$
(200,000)
(78,387)
$
(278,387)
Space Planning Cost
Rent Table - Landlord's Initial Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Total Income
$
$
$
Leasing Commission % (Each Year)
Tenant Improvement (Negative)
Leasing Commission (Negative)
Soft Costs of Construction (Negative)
$
$
$
Total Leasing Costs
$
250,000 $
(20,833) $
229,167 $
Year 1
6%
(200,000)
(78,387)
(2,000)
Year 2
3%
257,500 $
- $
257,500 $
Leasing Costs
Year 2
6%
(280,387) $
-
$
Year 3
3%
265,225 $
- $
265,225 $
Year 4
3%
273,182 $
- $
273,182 $
Year 5
3%
281,377 $
- $
281,377 $
Year 3
6%
Year 4
6%
Year 5
6%
-
$
-
$
Total
1,327,284
(20,833)
1,306,451
Total
-
$
$
$
(200,000)
(78,387)
(2,000)
$
(280,387)
Calculate Annual Cash Flow
Rent Table - Landlord's Initial Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Total Income
$
$
$
Leasing Commission % (Each Year)
Tenant Improvement (Negative)
Leasing Commission (Negative)
Soft Costs of Construction (Negative)
$
$
$
Total Leasing Costs
$
Cash Flow
Annual Cash Flow
Cumulative Total
250,000 $
(20,833) $
229,167 $
Year 1
6%
(200,000)
(78,387)
(2,000)
Year 2
3%
257,500 $
- $
257,500 $
Leasing Costs
Year 2
6%
(280,387) $
Year 1
Cash Flow
Year 2
-
Year 3
3%
265,225 $
- $
265,225 $
Year 4
3%
273,182 $
- $
273,182 $
Year 5
3%
281,377 $
- $
281,377 $
Year 3
6%
Year 4
6%
Year 5
6%
$
-
Year 3
$
-
Year 4
$
1,327,284
(20,833)
1,306,451
Total
-
Year 5
Total
$
$
$
(200,000)
(78,387)
(2,000)
$
(280,387)
Total
Annual Cash Flow
Rent Table - Landlord's Initial Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Total Income
$
$
$
Leasing Commission % (Each Year)
Tenant Improvement (Negative)
Leasing Commission (Negative)
Soft Costs of Construction (Negative)
$
$
$
Total Leasing Costs
$
Cash Flow
Annual Cash Flow
Cumulative Total
$
250,000 $
(20,833) $
229,167 $
Year 1
6%
(200,000)
(78,387)
(2,000)
Year 2
3%
257,500 $
- $
257,500 $
Leasing Costs
Year 2
6%
(280,387) $
-
$
Cash Flow
Year 1
Year 2
(51,220) $
257,500 $
Year 3
3%
265,225 $
- $
265,225 $
Year 4
3%
273,182 $
- $
273,182 $
Year 5
3%
281,377 $
- $
281,377 $
Year 3
6%
Year 4
6%
Year 5
6%
-
$
Year 3
265,225 $
-
$
Year 4
273,182 $
Total
1,327,284
(20,833)
1,306,451
Total
-
$
$
$
(200,000)
(78,387)
(2,000)
$
(280,387)
Year 5
281,377 $
Total
1,026,064
Calculate Cumulative Cash Flow
Rent Table - Landlord's Initial Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Total Income
$
$
$
Leasing Commission % (Each Year)
Tenant Improvement (Negative)
Leasing Commission (Negative)
Soft Costs of Construction (Negative)
$
$
$
Total Leasing Costs
$
Cash Flow
Annual Cash Flow
Cumulative Total
$
250,000 $
(20,833) $
229,167 $
Year 1
6%
(200,000)
(78,387)
(2,000)
Year 2
3%
257,500 $
- $
257,500 $
Leasing Costs
Year 2
6%
(280,387) $
-
$
Cash Flow
Year 1
Year 2
(51,220) $
257,500 $
Year 3
3%
265,225 $
- $
265,225 $
Year 4
3%
273,182 $
- $
273,182 $
Year 5
3%
281,377 $
- $
281,377 $
Year 3
6%
Year 4
6%
Year 5
6%
-
$
Year 3
265,225 $
-
$
Year 4
273,182 $
Total
1,327,284
(20,833)
1,306,451
Total
-
$
$
$
(200,000)
(78,387)
(2,000)
$
(280,387)
Year 5
281,377 $
Total
1,026,064
Cumulative Cash Flow
Rent Table - Landlord's Initial Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Total Income
$
$
$
Leasing Commission % (Each Year)
Tenant Improvement (Negative)
Leasing Commission (Negative)
Soft Costs of Construction (Negative)
$
$
$
Total Leasing Costs
$
Cash Flow
Annual Cash Flow
$
Cumulative Total
$
250,000 $
(20,833) $
229,167 $
Year 1
6%
(200,000)
(78,387)
(2,000)
Year 2
3%
257,500 $
- $
257,500 $
Leasing Costs
Year 2
6%
(280,387) $
-
$
Cash Flow
Year 1
Year 2
(51,220) $
257,500 $
(51,220) $
206,280 $
Year 3
3%
265,225 $
- $
265,225 $
Year 4
3%
273,182 $
- $
273,182 $
Year 5
3%
281,377 $
- $
281,377 $
Year 3
6%
Year 4
6%
Year 5
6%
-
$
-
$
Year 3
265,225 $
Year 4
273,182 $
471,505 $
744,687 $
Total
1,327,284
(20,833)
1,306,451
Total
-
$
$
$
(200,000)
(78,387)
(2,000)
$
(280,387)
Year 5
281,377 $
1,026,064
Total
1,026,064
Calculate Net Effective Rent
Net Effective Rent
Net 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
Calculation: Cumulative cash flow / square feet / lease term (years)
Net Effective Rent
Net Effective Rent
Net 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
Calculation: Cumulative cash flow / square feet / lease term (years)
• $1,026,064 / 10,000 square feet / 5 years = $ 20.52
Calculate Simple Payback
Net Effective Rent
Net 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
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
Calculate Simple Payback
Net Effective Rent
Net 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
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
Simple Payback
Net Effective Rent
Net Effective Rent
Simple Payback
Simple Payback (Years)
$
20.52
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
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
Calculate ROI
Net Effective Rent
Net Effective Rent
Simple Payback
Simple Payback (Years)
$
20.52
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
Calculation: (Total cash flow of each year – operating expenses ($10 psf x 10,000
sq ft = $100,000) - total leasing costs) / total leasing costs
ROI
Net Effective Rent
Net Effective Rent
Simple Payback
Simple Payback (Years)
Return on Investment (ROI)
Cumulative Return on Investment (ROI)
$
20.52
1.07
years
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
Calculation: (Total cash flow of each year – operating expenses ($10 psf x 10,000
sq ft = $100,000) - total leasing costs) / total leasing costs
Calculate Net Present Value
Calculated for You
Net Effective Rent
Net Effective Rent
Simple Payback
Simple Payback (Years)
Return on Investment (ROI)
Cumulative Return on Investment (ROI)
$
20.52
1.07
years
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
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
Calculate IRR
Calculated for You
Net Effective Rent
Net Effective Rent
$
Simple Payback
Simple Payback (Years)
20.52
1.07
Return on Investment (ROI)
Cumulative Return on Investment (ROI)
years
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%
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
Calculate Alternate Commissions
Lease Commission Options
Base Rent (net of concessions)
Leasing Commission Rate
Leasing Commission
Rent Tables
Year 2
257,500 $
$
Year 1
229,167 $
Year 3
265,225 $
Year 4
273,182 $
Year 5
281,377 $
Totals
1,306,451
Year 4
6%
16,391 $
Year 5
6%
16,883 $
Totals
$
Leasing Commission Option #1 - Flat Commission
Year 1
Year 2
Year 3
6%
6%
6%
13,750 $
15,450 $
15,914 $
Year 5
Totals
Leasing Commission Option #1 - Staggered Commission
Year 1
Year 2
Year 3
Year 4
Leasing Commission Rate
Leasing Commission
78,387
Calculate Alternate Commissions
Lease Commission Options
Base Rent (net of concessions)
Leasing Commission Rate
Leasing Commission
Leasing Commission Rate
Leasing Commission
Rent Tables
Year 2
257,500 $
$
Year 1
229,167 $
Year 3
265,225 $
Year 4
273,182 $
Year 5
281,377 $
Totals
1,306,451
Year 4
6%
16,391 $
Year 5
6%
16,883 $
Totals
$
Leasing Commission Option #1 - Flat Commission
Year 1
Year 2
Year 3
6%
6%
6%
13,750 $
15,450 $
15,914 $
Year 5
5%
Totals
Leasing Commission Option #1 - Staggered Commission
Year 1
Year 2
Year 3
Year 4
8%
6%
6%
5%
78,387
Alternate Commissions
Lease Commission Options
Rent Tables
Year 2
257,500 $
$
Year 1
229,167 $
Year 3
265,225 $
Year 4
273,182 $
Year 5
281,377 $
Totals
1,306,451
$
Year 4
6%
16,391 $
Year 5
6%
16,883 $
Totals
Leasing Commission Rate
Leasing Commission
Leasing Commission Option #1 - Flat Commission
Year 1
Year 2
Year 3
6%
6%
6%
13,750 $
15,450 $
15,914 $
Year 5
5%
14,069 $
Totals
Leasing Commission Rate
Leasing Commission
Leasing Commission Option #1 - Staggered Commission
Year 1
Year 2
Year 3
Year 4
8%
6%
6%
5%
$
18,333 $
15,450 $
15,914 $
13,659 $
Base Rent (net of concessions)
78,387
77,425
For Discussion
What lease commission structures are used
in your area?
Tenant’s Counter Offer
Rent Table - Tenant's Counter Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Net Operating Income
$
$
$
Leasing Commission Per Year
Tenant Improvement (Negative)
Leasing Commission (Negative)
Soft Costs of Construction (Negative)
$
$
$
Total
$
Annual Cash Flow
$
Cumulative Total
$
230,000 $
(57,500) $
172,500 $
Year 2
3%
236,900 $
- $
236,900 $
Leasing Costs
Year 1
Year 2
6%
6%
(250,000) $
(69,816) $
(2,000) $
-
(321,816) $
-
Year 4
3%
251,327 $
- $
251,327 $
Year 5
3%
258,867 $
- $
258,867 $
Year 3
6%
Year 4
6%
Year 5
6%
1,221,101
(57,500)
1,163,601
Total
-
$
$
$
-
$
$
$
-
$
$
$
(250,000)
(69,816)
(2,000)
$
-
$
-
$
-
$
(321,816)
Year 5
258,867 $
Total
841,785
87,584 $
Year 3
244,007 $
Year 4
251,327 $
331,591 $
582,918 $
Changes proposed by the tenant:
o
o
o
Total
$
$
$
Cash Flow
Year 1
Year 2
(149,316) $
236,900 $
(149,316) $
Year 3
3%
244,007 $
- $
244,007 $
Starting rent of $23 per square foot with 3% annual increases
Three (3) months of free rent
$25 per square foot tenant improvement allowance
841,785
Tenant’s Counter Offer
Net Effective Rent
Net Effective Rent
$
Simple Payback
Simple Payback (Years)
16.84
1.38
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) Calculation
$
Initial 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%
years
For Discussion
Review the rent table and financial
parameters of the Tenant’s Counter Offer
Would the asset manager do this deal?
Landlord’s Counter Offer
Rent Table - Landlord's Counter Offer
Year 1
Rent Increase Per Year
Base Rent
Less: Free Rent (Negative)
Net Operating Income
$
$
$
Leasing Commission Per Year
Tenant Improvement (Negative)
Leasing Commission (Negative)
Soft Costs of Construction (Negative)
$
$
$
Total
$
Annual Cash Flow
$
Cumulative Total
$
240,000 $
(40,000) $
200,000 $
Year 2
3%
247,200 $
- $
247,200 $
Leasing Costs
Year 1
Year 2
6%
6%
(225,000) $
(74,052) $
- $
-
Year 3
3%
254,616 $
- $
254,616 $
Year 4
3%
262,254 $
- $
262,254 $
Year 5
3%
270,122 $
- $
270,122 $
Year 3
6%
Year 4
6%
Year 5
6%
1,274,193
(40,000)
1,234,193
Total
$
$
$
-
$
$
$
-
$
$
$
-
$
$
$
(225,000)
(74,052)
-
-
$
-
$
-
$
-
$
(299,052)
Cash Flow
Year 1
Year 2
(99,052) $
247,200
$
Year 3
254,616
$
Year 4
262,254
$
Year 5
270,122
$
Total
935,141
$
402,764
$
665,019
$
935,141
(299,052) $
(99,052) $
148,148
Changes proposed by the landlord:
o
o
o
Total
Starting rent of $24 per square foot with 3% annual increases
Two (2) months of free rent
$22.50 per square foot tenant improvement allowance
Landlord’s Counter Offer
Net Effective Rent
Net Effective Rent
$
Simple Payback
Simple Payback (Years)
18.70
1.21
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) Calculation
$
Initial 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%
years
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 deal
or
Agree that no deal can be done