Toko Inc. is a real estate investor. The company purchases commercial properties and then resells them once the property has grown in value. This is normally done by renewing leases at higher rates or finding new tenants. You work for Toko and have been assigned to help out with their most recent purchase. All three buildings have leases with an average implicit rate of 8%. All of the leases will be up for renewal in the next 1–4 years. Toko is looking to improve the “lowest-performing” leases in each building. You have been provided the following information, which outlines the implicit rates in each lease, per building.

Required:
Explain what the rate implicit in the lease is. Comment on the lease payments in each of the buildings and present any conclusions you can draw. Provide recommendations for improving the return for each portfolio.

Transcribed Image Text:

25% 20% 15% 10% 5% 0% -5% -10% -15% Building 1 Building 2 Toko Inc. Rate Implicit in the Lease, by Building Building 3