Scribd Logo
Upload

Welcome to Scribd!

  • 223 views

    HW 7 Answer Key

    Uploaded by

    hatanolove
    This document contains questions about commercial real estate concepts such as conducting a simple financial feasibility analysis for an office building project, calculating effective rent under a net lease, defining different types of leases, and discussing factors that influence leasing strategies. It asks the reader to perform calculations to determine the minimum required gross rent per square foot and effective rent for a sample project as well as define terms like gross lease, net lease, and types of rent structures.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd

    HW 7 Answer Key

    Uploaded by

    hatanolove
    223 views2 pages
    This document contains questions about commercial real estate concepts such as conducting a simple financial feasibility analysis for an office building project, calculating effective rent under a net lease, defining different types of leases, and discussing factors that influence leasing strategies. It asks the reader to perform calculations to determine the minimum required gross rent per square foot and effective rent for a sample project as well as define terms like gross lease, net lease, and types of rent structures.

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    DOC, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document contains questions about commercial real estate concepts such as conducting a simple financial feasibility analysis for an office building project, calculating effective rent under a net lease, defining different types of leases, and discussing factors that influence leasing strategies. It asks the reader to perform calculations to determine the minimum required gross rent per square foot and effective rent for a sample project as well as define terms like gross lease, net lease, and types of rent structures.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    223 views2 pages

    HW 7 Answer Key

    Uploaded by

    hatanolove
    This document contains questions about commercial real estate concepts such as conducting a simple financial feasibility analysis for an office building project, calculating effective rent under a net lease, defining different types of leases, and discussing factors that influence leasing strategies. It asks the reader to perform calculations to determine the minimum required gross rent per square foot and effective rent for a sample project as well as define terms like gross lease, net lease, and types of rent structures.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 2

    Homework Assignment #7

    1. Based on the following information, develop a front door “Simple Financial


    Feasibility Analysis” (SFFA) for this project estimating the required minimum
    market gross rent per SF that will support development.

    • 40,000 NRSF office building project.


    • Acquisition & construction cost = $1,500,000;
    • Estimated operating costs (to landlord) = $100,000/yr.
    • Projected stabilized occupancy = 95%.
    • Permanent loan available on completion @ 9% (interest-only loan) with 130%
    debt service coverage requirement on the net operating income, and 75%
    maximum loan-to-value ratio.

    Answer:
    1500000 X .75 = 1125000 Max loan
    1125000 X .09 = 101250/yr debt svc
    101250 X 1.3 = 131625 Required NOI
    131625 + 100000 = 231625 Required EGI
    231625 / .95 = 243816 Required PGI
    243816 / 40000 = $6.10 / SF Gross rent required.

    2. What is the Effective Rent (under 10% discount rate assumption) for a 7-year net
    lease with rent fixed at $20/SF, in which the landlord agrees to give the tenant one
    year free rent up front and to pay for $10/SF worth of tenant improvements?

    Answer:
    N=6, I=10, PMT=20, FV=0, PV=87.1052
    LPV = 87.1052 – 10 = 77.1052
    Or CF0 = -10, CF1 to CF6 = 20, I = 10, NPV = 77.1052

    (Change calculator to begin mode)


    N=7, PV=77.1052, PMT=14.40
    Effective rent = $14.40

    3. Define gross lease and net lease.

    Answer:
    Gross lease: Landlord pays the operating expenses. This is also called a full
    service lease because the landlord provides such services as electricity, heat,
    water, cleaning, maintenance, security and so on, and no expense to the tenant.

    Net lease: Tenant is responsible for paying the operating expenses of the building.
    In a triple net lease, almost all of the operating expenses are charged to the tenant,
    including insurance and property tax. The landlord still have some expenses such
    as the property manager’s fees and cost associated with leasing activities.
    4. Define and discuss:
    a. Graduated rent
    b. Revaluated rent
    c. Indexed rent
    d. Percentage rent

    Answer:
    Graduated rent: Rent changes over time. The timing and the dollar amount of
    each change specified in the lease.

    Revaluated rent: Rent changes at times specified in the lease but dollar
    amount of each change depends on the market. For example, the lease may
    call for appraisal every 5 year, and rent is set at a predetermined percentage of
    the appraised value. Or re-evaluate every five years on the new lease signed
    by comparable properties.

    Indexed rent: Rent based on publicly observable index, ex. CPI or PPI. The
    rent adjustment is set at a percentage of the adjustment of the index. For
    example, Rent change is set at 50% of the CPI index adjustment means if CPI
    index increased 5%, rent will increase 2.5%.

    Percentage rent: Rent is set at a percentage of sales or net income together


    with a fixed base rent. For example, tenant pays $10/SF plus 5% of gross
    sales.

    5. Discuss some of the leasing strategy considerations

    Answer:
    See lecture outline.

    You might also like