250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease Case Study

description

250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease. Case Study. 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 - PowerPoint PPT Presentation

Transcript of 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

Page 1: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

250,000 square foot suburban office building

LL & T negotiating

10,000 square foot lease

Cas

e St

udy

Page 2: 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)

Page 3: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 4: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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.

Page 5: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 6: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 7: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 8: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 9: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 10: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 11: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 12: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 13: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 14: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 15: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 16: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 17: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 18: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 19: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 20: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 21: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 22: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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)

Page 23: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 24: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 25: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 26: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 27: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 28: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 29: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 30: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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.)

Page 31: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

As a group, review the rent table and financial parameters for this

deal

Page 32: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 33: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 34: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 35: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

For Discussion

What lease commission structures are used in your area?

Page 36: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 37: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 38: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

For Discussion

Review the rent table and financial parameters of the Tenant’s Counter Offer

Would the asset manager do this deal?

Page 39: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 40: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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

Page 41: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

As a group, review the rent table and financial parameters for this

deal

Page 42: 250,000 square foot suburban office building LL & T negotiating 10,000 square foot lease

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