Chapter 9: Leases, Cash Flows, - PowerPoint PPT Presentation

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Chapter 9: Leases, Cash Flows,

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Gross lease Lessor pays all expenses. Net Lease Lessee pays all expenses. ... Expense pass-through common in shopping centers where common area expenses are ... – PowerPoint PPT presentation

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Title: Chapter 9: Leases, Cash Flows,


1
Chapter 9 Leases, Cash Flows, Investment Value
  • Lease agreement between Lessor (owner) and
    Lessee (tenant)
  • Rent
  • Base Rent
  • Step-up provisions
  • CPI Adjustment (index lease)
  • Percentage rent ( of lessors gross inc.)

2
  • Who pays expenses?
  • Gross lease Lessor pays all expenses
  • Net Lease Lessee pays all expenses. Sometimes
    called a net-net-net lease or a triple net lease
  • Expense stop lessor pays only up to some point.
  • Expense pass-through common in shopping centers
    where common area expenses are passed through to
    the lessees.

3
  • Rental Concessions are often offered in lieu of
    direct rent reductions. Usually a sign of a weak
    market.
  • Equity Participation Owner gives key tenants
    equity in the property.
  • Other Lease Options
  • Lease renewal option
  • Right of 1st refusal in case of a sale
  • Tenant relocation option
  • Effective Rent Ave. annual rent after
    subtracting the value of any concessions. Used
    to facilitate comparisons between leases

4
Calculation of Effective Rent
  • Net Lease with steps
  • yr 1 yr 2 yr 3 yr 4 yr 5
  • Net Rent 10 11 12 13 14
  • Ave Rent 12
  • PV _at_ 10 44.77
  • Effective Rent 11.81 The effective rent is the
    PMT, where n5 PV44.77 I10, the payment that
    amortizes the PV of the expected lease payments.

5
  • Net Lease with free rent
  • yr 1 yr 2 yr 3 yr 4 yr 5
  • Net Rent 0 14 16 17 18
  • Ave Rent 13
  • PV _at_ 10 46.38
  • Effective Rent 12.23
  • See Exhibit 9-1 (page 266)

6
Homework
  • Problems 9-1, 9-3, 9-4 (on page 285)
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