1. Case Study 250,000 square foot suburban office building
LL & T negotiating 10,000 square foot lease
Case Study

2. First Things First Break out your calculator
Remove the remainder of the pages in this chapter and sort them into separate piles:
These instructions
The Landlord’s Initial Proposal
The Tenant’s Counter Proposal
The Landlord’s Counter Proposal
The various spreadsheets (end of chapter)

3. Landlord’s Initial Proposal
Rent = $25 psf gross - 3% annual increases
One month free rent (month 1)
OEs estimated at $10 per square foot in year 1 with 2.5% annual increases
Leasing commission is 6% of gross rent
LL representative (2%) and T representative (4%)
Lease legal fees = $1 psf
Some owners include lease legal fees – others do not
We will not include lease legal fees
Construction allowance = $20 psf
Landlord to contribute $0.20 psf for space planning
Owner expects a 9% return

4. Review the lease parameters of the Landlord’s Initial Offer and enter the data into the appropriate cells in your spreadsheet.

6. Rent Table - Landlord's Initial Offer Less: Free Rent (Negative)
Calculate Base Rent
Rent Table - Landlord's Initial Offer
Rent Increase Per Year
Year 1
Year 2
Year 3
Year 4
Year 5
Total 3%
Base Rent
Less: Free Rent (Negative)
Total Income

7. Rent Table - Landlord's Initial Offer Less: Free Rent (Negative)
Base Rent
Rent Table - Landlord's Initial Offer
Rent Increase Per Year
Year 1
Year 2
Year 3
Year 4
Year 5
Total 3%
Base Rent
$ ,000
$ ,500
$ ,225
$ ,182
$ ,377
$ ,327,284
Less: Free Rent (Negative)
Total Income

8. Rent Table - Landlord's Initial Offer Less: Free Rent (Negative)
Calculate Free Rent
Rent Table - Landlord's Initial Offer
Rent Increase Per Year
Year 1
Year 2
Year 3
Year 4
Year 5
Total 3%
Base Rent
$ ,000
$ ,500
$ ,225
$ ,182
$ ,377
$ ,327,284
Less: Free Rent (Negative)
Total Income

9. Rent Table - Landlord's Initial Offer Less: Free Rent (Negative)
Rent Increase Per Year
Year 1
Year 2
Year 3
Year 4
Year 5
Total 3%
Base Rent
$ ,000
$ ,500
$ ,225
$ ,182
$ ,377
$ ,327,284
Less: Free Rent (Negative)
$ (20,833) $
Total Income

10. Calculate Total Income
Rent Table - Landlord's Initial Offer
Rent Increase Per Year
Year 1
Year 2
Year 3
Year 4
Year 5
Total 3%
Base Rent
$ ,000
$ ,500
$ ,225
$ ,182
$ ,377
$ ,327,284
Less: Free Rent (Negative)
$ (20,833) $
Total Income

11. Rent Table - Landlord's Initial Offer Less: Free Rent (Negative)
Total Income
Rent Table - Landlord's Initial Offer
Rent Increase Per Year
Year 1
Year 2
Year 3
Year 4
Year 5
Total 3%
Base Rent
$ ,000
$ ,500
$ ,225
$ ,182
$ ,377
$ ,327,284
Less: Free Rent (Negative)
$ (20,833) $
Total Income
$ ,167
$ ,306,451

12. Calculate TI Allowance
Rent Table - Landlord's Initial Offer
Rent Increase Per Year
Year 1
Year 2
Year 3
Year 4
Year 5
Total 3%
Base Rent
$ ,000
$ ,500
$ ,225
$ ,182
$ ,377
$ ,327,284
Less: Free Rent (Negative)
$ (20,833) $
Total Income
$ ,167
$ ,306,451
Leasing Costs
Leasing Commission % (Each Year) 6%
Tenant Improvement (Negative)
Leasing Commission (Negative)
Soft Costs of Construction (Negative)
Total Leasing Costs

13. TI Allowance Rent Table - Landlord's Initial Offer
Rent Increase Per Year
Year 1
Year 2
Year 3
Year 4
Year 5
Total 3%
Base Rent
$ ,000
$ ,500
$ ,225
$ ,182
$ ,377
$ ,327,284
Less: Free Rent (Negative)
$ (20,833) $
Total Income
$ ,167
$ ,306,451
Leasing Costs
Leasing Commission % (Each Year) 6%
Tenant Improvement (Negative)
$ (200,000)
Leasing Commission (Negative)
Soft Costs of Construction (Negative)
Total Leasing Costs

14. Calculate Leasing Commission
Rent Table - Landlord's Initial Offer
Rent Increase Per Year
Year 1
Year 2
Year 3
Year 4
Year 5
Total 3%
Base Rent
$ ,000
$ ,500
$ ,225
$ ,182
$ ,377
$ ,327,284
Less: Free Rent (Negative)
$ (20,833) $
Total Income
$ ,167
$ ,306,451
Leasing Costs
Leasing Commission % (Each Year) 6%
Tenant Improvement (Negative)
$ (200,000)
Leasing Commission (Negative)
Soft Costs of Construction (Negative)
Total Leasing Costs

15. Leasing Commission Rent Table - Landlord's Initial Offer
Rent Increase Per Year
Year 1
Year 2
Year 3
Year 4
Year 5
Total 3%
Base Rent
$ ,000
$ ,500
$ ,225
$ ,182
$ ,377
$ ,327,284
Less: Free Rent (Negative)
$ (20,833) $
Total Income
$ ,167
$ ,306,451
Leasing Costs
Leasing Commission % (Each Year) 6%
Tenant Improvement (Negative)
$ (200,000)
Leasing Commission (Negative)
$ (78,387)
Soft Costs of Construction (Negative)
Total Leasing Costs
$ (278,387)

16. Calculate Space Planning Cost
Rent Table - Landlord's Initial Offer
Rent Increase Per Year
Year 1
Year 2
Year 3
Year 4
Year 5
Total 3%
Base Rent
$ ,000
$ ,500
$ ,225
$ ,182
$ ,377
$ ,327,284
Less: Free Rent (Negative)
$ (20,833) $
Total Income
$ ,167
$ ,306,451
Leasing Costs
Leasing Commission % (Each Year) 6%
Tenant Improvement (Negative)
$ (200,000)
Leasing Commission (Negative)
$ (78,387)
Soft Costs of Construction (Negative)
Total Leasing Costs
$ (278,387)

17. Space Planning Cost Rent Table - Landlord's Initial Offer
Rent Increase Per Year
Year 1
Year 2
Year 3
Year 4
Year 5
Total 3%
Base Rent
$ ,000
$ ,500
$ ,225
$ ,182
$ ,377
$ ,327,284
Less: Free Rent (Negative)
$ (20,833) $
Total Income
$ ,167
$ ,306,451
Leasing Costs
Leasing Commission % (Each Year) 6%
Tenant Improvement (Negative)
$ (200,000)
Leasing Commission (Negative)
$ (78,387)
Soft Costs of Construction (Negative)
$ (2,000)
Total Leasing Costs
$ (280,387)

18. Calculate Annual Cash Flow
Rent Table - Landlord's Initial Offer
Rent Increase Per Year
Year 1
Year 2
Year 3
Year 4
Year 5
Total 3%
Base Rent
$ ,000
$ ,500
$ ,225
$ ,182
$ ,377
$ ,327,284
Less: Free Rent (Negative)
$ (20,833) $
Total Income
$ ,167
$ ,306,451
Leasing Costs
Leasing Commission % (Each Year) 6%
Tenant Improvement (Negative)
$ (200,000)
Leasing Commission (Negative)
$ (78,387)
Soft Costs of Construction (Negative)
$ (2,000)
Total Leasing Costs
$ (280,387)
Cash Flow
Annual Cash Flow
Cumulative Total

19. Annual Cash Flow Rent Table - Landlord's Initial Offer
Rent Increase Per Year
Year 1
Year 2
Year 3
Year 4
Year 5
Total 3%
Base Rent
$ ,000
$ ,500
$ ,225
$ ,182
$ ,377
$ ,327,284
Less: Free Rent (Negative)
$ (20,833) $
Total Income
$ ,167
$ ,306,451
Leasing Costs
Leasing Commission % (Each Year) 6%
Tenant Improvement (Negative)
$ (200,000)
Leasing Commission (Negative)
$ (78,387)
Soft Costs of Construction (Negative)
$ (2,000)
Total Leasing Costs
$ (280,387)
Cash Flow
Annual Cash Flow
$ (51,220)
$ ,026,064
Cumulative Total

20. Calculate Cumulative Cash Flow
Rent Table - Landlord's Initial Offer
Rent Increase Per Year
Year 1
Year 2
Year 3
Year 4
Year 5
Total 3%
Base Rent
$ ,000
$ ,500
$ ,225
$ ,182
$ ,377
$ ,327,284
Less: Free Rent (Negative)
$ (20,833) $
Total Income
$ ,167
$ ,306,451
Leasing Costs
Leasing Commission % (Each Year) 6%
Tenant Improvement (Negative)
$ (200,000)
Leasing Commission (Negative)
$ (78,387)
Soft Costs of Construction (Negative)
$ (2,000)
Total Leasing Costs
$ (280,387)
Cash Flow
Annual Cash Flow
$ (51,220)
$ ,026,064
Cumulative Total

21. Cumulative Cash Flow Rent Table - Landlord's Initial Offer
Rent Increase Per Year
Year 1
Year 2
Year 3
Year 4
Year 5
Total 3%
Base Rent
$ ,000
$ ,500
$ ,225
$ ,182
$ ,377
$ ,327,284
Less: Free Rent (Negative)
$ (20,833) $
Total Income
$ ,167
$ ,306,451
Leasing Costs
Leasing Commission % (Each Year) 6%
Tenant Improvement (Negative)
$ (200,000)
Leasing Commission (Negative)
$ (78,387)
Soft Costs of Construction (Negative)
$ (2,000)
Total Leasing Costs
$ (280,387)
Cash Flow
Annual Cash Flow
$ (51,220)
$ ,026,064
Cumulative Total
$ ,280
$ ,505
$ ,687

22. Calculate Net Effective Rent
Simple Payback
Simple Payback (Years)
years
Return on Investment (ROI)
Cumulative Return on Investment (ROI)
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)
Net Present Value of this Cash Flow
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
Cash Inflow - Year 1
Cash Inflow - Year 2
Cash Inflow - Year 3
Cash Inflow - Year 4
Cash Inflow - Year 5
Internal Rate of Return
Calculation: Cumulative cash flow / square feet / lease term (years)

23. Net Effective Rent
Net Effective Rent $
Simple Payback
Simple Payback (Years)
years
Return on Investment (ROI)
Cumulative Return on Investment (ROI)
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)
Net Present Value of this Cash Flow
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
Cash Inflow - Year 1
Cash Inflow - Year 2
Cash Inflow - Year 3
Cash Inflow - Year 4
Cash Inflow - Year 5
Internal Rate of Return
Calculation: Cumulative cash flow / square feet / lease term (years)
$1,026,064 / 10,000 square feet / 5 years = $ 20.52

24. Calculate Simple Payback
Net Effective Rent $
Simple Payback
Simple Payback (Years)
years
Return on Investment (ROI)
Cumulative Return on Investment (ROI)
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)
Net Present Value of this Cash Flow
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
Cash Inflow - Year 1
Cash Inflow - Year 2
Cash Inflow - Year 3
Cash Inflow - Year 4
Cash Inflow - Year 5
Internal Rate of Return
Calculation Step 1 - (determine average annual income) - Total income / lease term (years) - $1,306,284 / 5 years = $261,257
Calculation Step 2 - Total leasing costs / average annual income = simple payback - $280,387 / $ = 1.07 years

25. Calculate Simple Payback
Net Effective Rent $
Simple Payback
Simple Payback (Years)
years
Return on Investment (ROI)
Cumulative Return on Investment (ROI)
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)
Net Present Value of this Cash Flow
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
Cash Inflow - Year 1
Cash Inflow - Year 2
Cash Inflow - Year 3
Cash Inflow - Year 4
Cash Inflow - Year 5
Internal Rate of Return
Calculation Step 1 - (determine average annual income) - Total income / lease term (years) - $1,306,284 / 5 years = $261,257
Calculation Step 2 - Total leasing costs / average annual income = simple payback - $280,387 / $ = 1.07 years

26. Simple Payback
Net Effective Rent $
Simple Payback
Simple Payback (Years)
1.07
years
Return on Investment (ROI)
Cumulative Return on Investment (ROI)
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)
Net Present Value of this Cash Flow
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
Cash Inflow - Year 1
Cash Inflow - Year 2
Cash Inflow - Year 3
Cash Inflow - Year 4
Cash Inflow - Year 5
Internal Rate of Return
Calculation Step 1 - (determine average annual income) - Total income / lease term (years) - $1,306,284 / 5 years = $261,257
Calculation Step 2 - Total leasing costs / average annual income = simple payback - $280,387 / $ = 1.07 years

27. Calculate ROI
Net Effective Rent $
Simple Payback
Simple Payback (Years)
1.07
years
Return on Investment (ROI)
Cumulative Return on Investment (ROI)
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)
Net Present Value of this Cash Flow
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
Cash Inflow - Year 1
Cash Inflow - Year 2
Cash Inflow - Year 3
Cash Inflow - Year 4
Cash Inflow - Year 5
Internal Rate of Return
Calculation: (Total cash flow of each year – operating expenses ($10 psf x 10,000 sq ft = $100,000) - total leasing costs) / total leasing costs

28. ROI
Net Effective Rent $
Simple Payback
Simple Payback (Years)
1.07
years
Return on Investment (ROI)
Cumulative Return on Investment (ROI)
87.62%
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)
Net Present Value of this Cash Flow
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
Cash Inflow - Year 1
Cash Inflow - Year 2
Cash Inflow - Year 3
Cash Inflow - Year 4
Cash Inflow - Year 5
Internal Rate of Return
Calculation: (Total cash flow of each year – operating expenses ($10 psf x 10,000 sq ft = $100,000) - total leasing costs) / total leasing costs

29. Calculate Net Present Value
Calculated for You
Net Effective Rent $
Simple Payback
Simple Payback (Years)
1.07
years
Return on Investment (ROI)
Cumulative Return on Investment (ROI)
87.62%
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)
Net Present Value of this Cash Flow
$727,798
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
Cash Inflow - Year 1
Cash Inflow - Year 2
Cash Inflow - Year 3
Cash Inflow - Year 4
Cash Inflow - Year 5
Internal Rate of Return
Excel Formula - =NPV(discount rate, (total income Year 1, Year 2, etc.) - landlord costs
=NPV(9%, ($229,167 + $257,500 + $265,225 + $273,182 + $281,37) - $280,387 = $727,797

30. Calculate IRR Calculated for You
Net Effective Rent $
Simple Payback
Simple Payback (Years)
1.07
years
Return on Investment (ROI)
Cumulative Return on Investment (ROI)
87.62%
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)
Net Present Value of this Cash Flow
$727,798
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
$ (280,387)
Cash Inflow - Year 1
$ ,167
Cash Inflow - Year 2
$ ,500
Cash Inflow - Year 3
$ ,225
Cash Inflow - Year 4
$ ,182
Cash Inflow - Year 5
$ ,377
Internal Rate of Return
83.99%
Excel Formula - =IRR(cash outflow + annual cash flow Year 1, Year 2, etc.)

31. As a group, review the rent table and financial parameters for this deal

32. Calculate Alternate Commissions
Lease Commission Options
Rent Tables
Year 1
Year 2
Year 3
Year 4
Year 5
Totals
Base Rent (net of concessions)
$ ,167
$ ,500
$ ,225
$ ,182
$ ,377
$ ,306,451
Leasing Commission Option #1 - Flat Commission
Leasing Commission Rate 6%
Leasing Commission
$ ,750
$ ,450
$ ,914
$ ,391
$ ,883
$ ,387
Leasing Commission Option #1 - Staggered Commission

33. Calculate Alternate Commissions
Lease Commission Options
Rent Tables
Year 1
Year 2
Year 3
Year 4
Year 5
Totals
Base Rent (net of concessions)
$ ,167
$ ,500
$ ,225
$ ,182
$ ,377
$ ,306,451
Leasing Commission Option #1 - Flat Commission
Leasing Commission Rate 6%
Leasing Commission
$ ,750
$ ,450
$ ,914
$ ,391
$ ,883
$ ,387
Leasing Commission Option #1 - Staggered Commission 8% 5%

34. Alternate Commissions
Lease Commission Options
Rent Tables
Year 1
Year 2
Year 3
Year 4
Year 5
Totals
Base Rent (net of concessions)
$ ,167
$ ,500
$ ,225
$ ,182
$ ,377
$ ,306,451
Leasing Commission Option #1 - Flat Commission
Leasing Commission Rate 6%
Leasing Commission
$ ,750
$ ,450
$ ,914
$ ,391
$ ,883
$ ,387
Leasing Commission Option #1 - Staggered Commission 8% 5%
$ ,333
$ ,659
$ ,069
$ ,425

35. What lease commission structures are used in your area?
For Discussion
What lease commission structures are used in your area?

36. Tenant’s Counter Offer
Rent Table - Tenant's Counter Offer
Year 1
Year 2
Year 3
Year 4
Year 5
Total
Rent Increase Per Year 3%
Base Rent
$ ,000
$ ,900
$ ,007
$ ,327
$ ,867
$ ,221,101
Less: Free Rent (Negative)
$ (57,500) $
Net Operating Income
$ ,500
$ ,163,601
Leasing Costs
Leasing Commission Per Year 6%
Tenant Improvement (Negative)
$ (250,000)
Leasing Commission (Negative)
$ (69,816)
Soft Costs of Construction (Negative)
$ (2,000)
$ (321,816)
Cash Flow
Annual Cash Flow
$ (149,316)
$ ,785
Cumulative Total
$ ,584
$ ,591
$ ,918
Changes proposed by the tenant:  
Starting rent of $23 per square foot with 3% annual increases
Three (3) months of free rent
$25 per square foot tenant improvement allowance

37. Tenant’s Counter Offer
Net Effective Rent $
Simple Payback
Simple Payback (Years)
1.38
years
Return on Investment (ROI)
Cumulative Return on Investment (ROI)
6.21%
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)
Net Present Value of this Cash Flow
$570,545
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
$ (321,816)
Cash Inflow - Year 1
$ ,500
Cash Inflow - Year 2
$ ,900
Cash Inflow - Year 3
$ ,007
Cash Inflow - Year 4
$ ,327
Cash Inflow - Year 5
$ ,867
Internal Rate of Return
60.25%

38. Would the asset manager do this deal?
For Discussion
Review the rent table and financial parameters of the Tenant’s Counter Offer
Would the asset manager do this deal?

39. Landlord’s Counter Offer
Rent Table - Landlord's Counter Offer
Year 1
Year 2
Year 3
Year 4
Year 5
Total
Rent Increase Per Year 3%
Base Rent
$ ,000
$ ,200
$ ,616
$ ,254
$ ,122
$ ,274,193
Less: Free Rent (Negative)
$ (40,000) $
Net Operating Income
$ ,000
$ ,234,193
Leasing Costs
Leasing Commission Per Year 6%
Tenant Improvement (Negative)
$ (225,000)
Leasing Commission (Negative)
$ (74,052)
Soft Costs of Construction (Negative)
$ (299,052)
Cash Flow
Annual Cash Flow
$ (99,052)
$ ,141
Cumulative Total
$ ,148
$ ,764
$ ,019
Changes proposed by the landlord:  
Starting rent of $24 per square foot with 3% annual increases
Two (2) months of free rent
$22.50 per square foot tenant improvement allowance

40. Landlord’s Counter Offer
Net Effective Rent $
Simple Payback
Simple Payback (Years)
1.21
years
Return on Investment (ROI)
Cumulative Return on Investment (ROI)
45.51%
Net Present Value (NPV) Calculation (assuming a 9% Discount Rate)
Net Present Value of this Cash Flow
$650,457
Internal Rate of Return (IRR) Calculation
Initial Cash Outflow
$ (299,052)
Cash Inflow - Year 1
$ ,000
Cash Inflow - Year 2
$ ,200
Cash Inflow - Year 3
$ ,616
Cash Inflow - Year 4
$ ,254
Cash Inflow - Year 5
$ ,122
Internal Rate of Return
71.66%

41. As a group, review the rent table and financial parameters for this deal

42. Agree that no deal can be done
What’s Next?
Parties will continue to go back and forth with counter offers until they:
Reach a deal or
Agree that no deal can be done