You have a prospective lessee for your office property. You have the following options for the lease and the lessee is indifferent between the choices and will let you pick the option (assume a 10-year window and 7% discount rate). Which one will provide you with the highest effective rent?

a. Option A: Rent is $60 per rentable square foot (RSF) per year. Operating expenses are $20 RSF during the first year and will increase by $1.50 every year.

b. Option B: Rent is $58 per rentable square foot with the lessor paying operating expenses up to $20, lessee responsible for remainder. Operating expenses are $18 in first year and increase by $2 each year

c. Option C: Rent is $55 per rentable square foot and will increase by $2 each year. Operating expenses are $20 during the first year and will increase by $1 every year.

d. Option D: Rent is $56 per rentable square foot per year and will increase by $2 each year. Operating expenses are $23 for the first year and will increase by $1.50 every year, with lessor covering $25

Answer rating: 100% (QA)

To determine the option with the highest effective rentwe need to calculate the Present Value PV of ... View the full answer