Question

Real Estate Finance: Effective Rent

Corp. is considering a lease proposal. The landlord is offering a 5 year lease with a net rentable area of 19,500 square feet and a usable area of 16,400 square feet. Rent is scheduled to start at $25.00 per square foot, increasing $0.50 per square foot per year.

To entice the tenant to move, the landlord is offering tenant improvements of $17.00 per square foot and 5 months of free rent. Expenses are to be reimbursed above the first (base) year, and operating expenses are currently at $9.00 per square foot and expected to increase 3% per year.

Assuming a discount rate of 8.6%, what is the effective rent per usable square foot, from the tenant's point of view?

A. $26.00 B. $23.92 C. $24.01 D. $28.55

Answer 1

Step 1 : Calculate the cash outflow

Step 2 : Calculate the present value of the cash outflow, based on discounting rate of 8.6%

Step 3 : Calculation of effective rent per usable square foot