You own an office building in downtown Los Angeles. Your tenants have not been using the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You own an office building in downtown Los Angeles. Your tenants have not been using the space during the COVID-19 recession. Even when the pandemic is over, they expect that the space will not be as valuable anymore because they can work from home easier. Therefore, they want to renegotiate their leases. You expect that fixed operating expenses will be $40 per square foot in the first year, and then it will increase 3% per year in the future. You expect that variable operating expenses will be 10% of rent. You also expect to set aside 5% of rent in capital reserves every year. Your discount rate is 8%. You are considering the following scenarios. 1. You could charge $100 per square foot per year for the next 5 years with a triple net lease. What is the effective net rent? 2. You could charge $75 per square foot per year, increasing $10 per year for the next 5 years, with a gross lease. What is the effective net rent? 3. You could charge $90 per square foot per year, increasing at 2% inflation per year for the next 5 years, with a single net lease. What is the effective net rent? 4. You could charge $85 per square foot per year, increasing $5 per year for the next 7 years, with a double net lease. What is the effective net rent? 5. Which lease do you prefer? Why? You own an office building in downtown Los Angeles. Your tenants have not been using the space during the COVID-19 recession. Even when the pandemic is over, they expect that the space will not be as valuable anymore because they can work from home easier. Therefore, they want to renegotiate their leases. You expect that fixed operating expenses will be $40 per square foot in the first year, and then it will increase 3% per year in the future. You expect that variable operating expenses will be 10% of rent. You also expect to set aside 5% of rent in capital reserves every year. Your discount rate is 8%. You are considering the following scenarios. 1. You could charge $100 per square foot per year for the next 5 years with a triple net lease. What is the effective net rent? 2. You could charge $75 per square foot per year, increasing $10 per year for the next 5 years, with a gross lease. What is the effective net rent? 3. You could charge $90 per square foot per year, increasing at 2% inflation per year for the next 5 years, with a single net lease. What is the effective net rent? 4. You could charge $85 per square foot per year, increasing $5 per year for the next 7 years, with a double net lease. What is the effective net rent? 5. Which lease do you prefer? Why?
Expert Answer:
Answer rating: 100% (QA)
Answer and explanations 1 Net Effective Rent with a Triple Net Lease NNN is 9500 per square foot per ... View the full answer
Related Book For
Introduction to Management Accounting
ISBN: 978-0133058789
16th edition
Authors: Charles Horngren, Gary Sundem, Jeff Schatzberg, Dave Burgsta
Posted Date:
Students also viewed these finance questions
-
In January 2011, Tammy acquired an office building in downtown Syracuse, New York for $400,000. The building was originally constructed in 1932. Of the $400,000 cost, $40,000 was allocated to the...
-
Twenty years ago Sigurdsen Corp. purchased an office building in Oslo for 12 million Norwegian kroner (Kr), 4 million of which was attributable to land. Sigurdsen has fully paid off the mortgage. The...
-
22. Martha McDonald purchased an office building in 1995 for $630,000. In 2015, she sells the building for $950,000. Over the years, she had replaced the windows and doors at a cost of $60,000,...
-
The voltage held by a voltage regulator follows a normal random variable with a mean that equals 200 volts and a standard deviation that equals 5 volts. A regulator meets the specifications if the...
-
The following reaction is at equilibrium: N2 + 3H2 + 2NH3 The Keq at a particular temperature is 13.7. If the equilibrium [N2] is 0.055 M and the equilibrium [H2] is 1.62 M, what is the equilibrium...
-
The projected sales of Sharp Corporation for the first 8 months of 2019 are shown in the table below. Of Sharps sales, 12 percent is for cash, another 58 percent is collected in the month following...
-
A flat plate is of planar dimension \(1 \mathrm{~m} \times 0.75\mathrm{~m}\). For parallel laminar flow over the plate, calculate the ratio of the average heat transfer coefficients over the entire...
-
Three alternative designs have been created by Snakisco engineers for a new machine that spreads cheese between the crackers in a Snakisco snack. Each machine design has unique total costs (fixed and...
-
While the U.S. Constitution's First Amendment protects the right of journalists to gather and report information, it does notrequire them to be objective in their writing. If it did, American news...
-
Mahalo Boat Adventure Inc. has a July 31 year-end. It showed the following partial amortization schedules regarding two bond issues: Required Answer the following for each bond issue: a. Were the...
-
Proudie, Slope and Thorne were in partnership sharing profits and losses in the ratio 3:1:1. The draft statement of financial position of the partnership as at 31 May 20X9 is shown below: $ $ $...
-
Interview five adult sports participants and ask them to describe the sports socialization process as it relates to their personal experience. Attempt to interview people with different sports...
-
Prepare a report that describes how time pressures are influencing sports participation in the United States. How are sports marketers responding to increasing time pressures?
-
Using the World Wide Web, prepare a report that examines sport participation in Australia. What are the similarities and differences in the sports culture of Australia versus that of the United...
-
What is the Uniform Guidelines on Employee Selection Procedures? To whom do the guidelines apply? What do they cover? Joe Alverez has filed a complaint with the EEO alleging that his employer,...
-
Todd Energy Company computes individually insignificant property impairment by grouping such properties according to year of acquisition. During 2019, Todd Energy acquired individually insignificant...
-
You are a supply chain manager at XYZ Company, tasked with optimizing the inventory management system. The company has 12 items in its inventory. The following table gives the item number, cost, and...
-
Repeat the previous problem, but close the positions on September 20. Use the spreadsheet to find the profits for the possible stock prices on September 20. Generate a graph and use it to identify...
-
Consider the actual purchase several years ago of boat maker Bayliner by Brunswick Corporation, modified slightly to simplify the numbers. The purchase price was $400 million for a 100% interest....
-
Kilgore Precision Machining (KPM) has a highly automated manufacturing process for producing a variety of auto parts. Through the use of computer-aided manufacturing and robotics, the company has...
-
Explain the use of incentives to control cost.
-
The MINITAB commands will create a normal scores plot from observations that were set in C1. (MINITAB uses a variant of the normal scores, \(m_{i}\), that we defined.) Construct a normal scores plot...
-
With reference to the preceding exercise, find the corresponding distribution function and use it to determine the probabilities that a random variable having this distribution function will take on...
-
Use the computing formula for \(\sigma^{2}\) to rework part (b) of the preceding exercise. Data From Preceding Exercise Determining a joint cumulative distribution function Find the joint cumulative...
Study smarter with the SolutionInn App