Business, 15.02.2020 05:25 kyliearnell

A building owner is evaluating the following alternatives for leasing space in an office building for the next five years:

(a) Net lease with steps. Rent will be $15 per square foot the first year and will increase by $1.50 per square foot each year until the end of the lease. All operating expenses will be paid by the tenant.
(b) Net lease with CPI adjustments. The rent will be $16 psf the first year. After the first year, the rent will be increased by the amount of any increase in the CPI. The CPI is expected to increase by 3 percent per year.
(c) Gross lease. Rent will be $30 psf each year with the lessor responsible for payment of all operating expenses. Expenses are estimated to be $9 psf during the first year and increase by $1 psf per year thereafter. Gross lease with expense stop and CPI adjustment. Rent will be $22 the first year and increase by the full amount of any change in the CPI after the first year with an expense stop at $9 psf. The CPI and operating expenses are assumed to change by the same amount as outlined above.

How would you rank the alternatives in terms of risk to the property owner?

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A building owner is evaluating the following alternatives for leasing space in an office building fo...

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