Effective Rent Calculation for Leased Office Space

How can we calculate the effective rent for a leased office space?

Given the lease terms and discounts, what steps are involved in determining the effective rent?

Effective Rent Calculation Process

To calculate the effective rent for a leased office space, we need to consider various factors such as rent, expenses, free rent periods, moving allowance, and tenant improvements (TIs). Let's break down the calculation step by step:

First, we calculate the annual cash flows for each year of the lease:

Year 1:

Rent = 13,377 sq ft * $19/sq ft = $254,163

Year 2:

Rent = 13,377 sq ft * ($19 + $3)/sq ft = $285,141

Year 3:

Rent = 13,377 sq ft * ($19 + $3 + $3)/sq ft = $316,119

Next, we calculate the total annual expenses for each year:

Year 1: $5.45/sq ft * 13,377 sq ft = $72,836.65

Year 2: $8/sq ft * 13,377 sq ft = $107,016

Year 3: $10/sq ft * 13,377 sq ft = $133,770

Then, we determine the net cash flows by adjusting for expenses, moving allowance, and TIs:

Year 1: $183,365.35

Year 2: $180,164

Year 3: $184,388