You have to make a choice between three mutually exclusive property investments. Think of these as alternative long-term net leases for the same building that will start in one year. The tenant will pay all operating expenses. These are all 10-year non-renewable leases. The following information is provided about each investment: Lease 1

Initial net cash flow: $2,000,000

Cash flow growth rate: 3% per annum

Required rate of return (OCC): 6%

Lease 2

Initial net cash flow: $1,500,000

Cash flow growth rate: 5% per annum

Required rate of return (OCC): 5%

Lease 3

Initial net cash flow: $2,800,000

Cash flow growth rate: 2% per annum

Required rate of return (OCC): 7%

In each case, the initial cash flow (net rent) occurs in Year 1 and the rent payments on an annual basis thereafter. You must make an investment of $2,500,000 upfront (in Year 0) to pay for tenant improvements to customize the space for the tenants occupancy, in order to get the tenant to agree to the 10-year lease. Cash flow growth rates are simple annual rates with annual compounding.

Calculate the net present value (NPV) of each lease investment, assuming the last cash flow occurs in Year 10. Tip: The NPV is calculated as the difference between the present value of the future net cash flows, minus the upfront investment.