Wealth Opportunities in Commercial Real Estate: Management, Financing, and Marketing of Investment Properties

Problem Number 6

Let us assume that after six months, OK locates a replacement tenant for Go Dark: the Discount Factory. The Discount Factory sells varied merchandise at low, discounted prices. The Discount Factory agrees to a new 15-year lease at $.75 per square foot per month, $9.00 per square foot on an annual basis. The lease rate increases by $.15 per square foot per month every fifth lease year. The Discount Factory bargains for and receives the first two months Base Rent at $.375 per square foot per month. In other words, the landlord grants one month of free rent based upon the Base Rent, which excludes the operating cost charges. The lease is structured as a triple net lease. The landlord also agrees to disburse $1,000,000 as a tenant improvement allowance and to take over Discount Factory's existing lease obligation. The Discount Factory's existing lease of 20,000 square feet has three years to run at $.50 per square foot per month.

During this six-month period, OK renewed two leases, that is, suite A-100, Batters Box Storage, and suite A-103, Catcher's Nite & Day Lingerie. OK also was able to finalize two leases: one for 1,300 square feet and the other for 2,241 square feet. The initial Base Rent for the new leases are, respectively, $1.25 per square foot per month and $1.29 per square foot per month.

(Please refer to Exhibit A.5 on the companion website, which reflects a current rent roll based upon the information contained in Problem Number 5 as modified by the comments ...