Norman Ryerson, CEO of a banking consultancy firm in Toronto, wishes to lease all 1,000 square meters of his corporate HQ building for the next five years. Planning future negotiations, Ryerson is considering one of four alternative leases described below to present a potential lesse. He hires you to calculate the effective net rent per square meter he will earn from each type of lease, with all discounting to assume a constant annual interest rate of 10%:

Gross Lease: Annual rent is to be $30.00 per square meter each year with the lessor responsible for covering all operating expenses. Ryerson estimates such payments for the entire 1,000 meters to be $750.00 per month for the first year with an average annual increase of $1.00 per square meter in each of the next four years;

Gross Lease with Annual CPI Adjustment and Expense Stop: Rent per square meter is to be $22 in the first year, and increase by the percentage increase in the Consumer Price Index in each subsequent year, which Ryerson estimate to average 3% per year. The expense stop is specifed to be $9 per square meter and estimate annual operating costs are also expected to increase by 3% annualy

Net lease with Annual Steps: Annual rent is to be $15 per square meter for the first year and increase by $1.50 per square meter in each succeeding year, with all operating expenses to be covered by the lesee.

Net Lease with Annual CPI Adjustment: Annual rent is to be $16 per square meter the first year with annual rent to increase by the percentage increase in the Consumer Price Index in each subsequent year. Ryerson continues to expect an average annual increase in the CPI of 3% after this year.