CHAPTER 30 Chapter 30 Leases and Leasing Strategy

CHAPTER 30 Chapter 30 Leases and Leasing Strategy

CHAPTER 30 Chapter 30 Leases and Leasing Strategy SLIDE 1 2014 OnCourse Learning. All Rights Reserved. CHAPTER 30

CHAPTER OUTLINE 30.1 Commercial Property Lease Terminology and Typology 30.1.1 Basic Lease Typology: The Responsibility for Expenses 30.1.2 Types of Rent Changes in Leases 30.2 Lease Characteristics Affecting Value or Rent 30.3 Annuitized Lease Value and Effective Rent 30.3.1 Discount Rate in the ALV 30.3.2 ALV Numerical Examples 30.3.3 Summarizing ALV and Effective Rent SLIDE 2

2014 OnCourse Learning. All Rights Reserved. CHAPTER 30 CHAPTER OUTLINE (continued) 30.4 Broader Leasing Strategy Considerations: Term Length and the Space Market Term Structure of Rent 30.4.1 30.4.2 30.4.3 30.4.4

Interlease Risk Releasing Costs Expectations about the Future Rental Market Uncertainty and the Value of Flexibility and Options in Leases 30.4.5 Staggered Lease Expirations and Releasing Risk 30.4.6 Summary: Rent Term Structure and Optimal LeaseTerm Length SLIDE 3 2014 OnCourse Learning. All Rights Reserved. CHAPTER 30

CHAPTER OUTLINE (continued) 30.5 Other Leasing and Rent Issues 30.5.1 Microspatial Trade-Offs and Synergies 30.5.2 Why Percentage Rents? (Consideration of Optimal Rent Structure) 30.5.3 Why Concessions? 30.5.4 Optimal Asking Rent and Optimal Vacancy 30.6 Chapter Summary SLIDE 4 2014 OnCourse Learning. All Rights Reserved.

CHAPTER 30 LEARNING OBJECTIVES After reading this chapter, you should understand: The major characteristics and descriptive terminology used in commercial property leases in the United States. What is meant by effective rent, annuitized lease value, and how to calculate these values. The major factors determining lease value to the landlord that are left out of the effective rent or annuitized lease value calculation. Some major leasing strategy issues and trade-offs facing landlords and tenants.

SLIDE 5 2014 OnCourse Learning. All Rights Reserved. 30.1 Commercial Property Lease Terminology and Typology SLIDE 6 2014 OnCourse Learning. All Rights Reserved. CHAPTER 30

30.1.1 Basic Lease Typology: The Responsibility for Expenses SLIDE 7 2014 OnCourse Learning. All Rights Reserved. CHAPTER 30 CHAPTER 30 30.1.2 Types of Rent Changes in Leases

SLIDE 8 2014 OnCourse Learning. All Rights Reserved. 30.2 Lease Characteristics Affecting Value or Rent SLIDE 9 2014 OnCourse Learning. All Rights Reserved. CHAPTER 30

CHAPTER 30 30.3 Annuitized Lease Value and Effective Rent SLIDE 10 2014 OnCourse Learning. All Rights Reserved. CHAPTER 30 30.3.1 Discount Rate in the ALV

SLIDE 11 2014 OnCourse Learning. All Rights Reserved. CHAPTER 30 30.3.2 ALV Numerical Examples SLIDE 12 2014 OnCourse Learning. All Rights Reserved.

CHAPTER 30 30.3.3 Summarizing ALV and Effective Rent SLIDE 13 2014 OnCourse Learning. All Rights Reserved. CHAPTER 30 30.4 Broader Leasing Strategy Considerations: Term Length and the Space Market Term Structure of Rent

SLIDE 14 2014 OnCourse Learning. All Rights Reserved. CHAPTER 30 30.4.1 Interlease Risk SLIDE 15 2014 OnCourse Learning. All Rights Reserved.

CHAPTER 30 30.4.2 Releasing Costs SLIDE 16 2014 OnCourse Learning. All Rights Reserved. 30.4.3 Expectations about the Future Rental Market SLIDE 17

2014 OnCourse Learning. All Rights Reserved. CHAPTER 30 30.4.4 Uncertainty and the Value of Flexibility and Options in Leases SLIDE 18 2014 OnCourse Learning. All Rights Reserved. CHAPTER 30

30.4.5 Staggered Lease Expirations and Releasing Risk SLIDE 19 2014 OnCourse Learning. All Rights Reserved. CHAPTER 30 30.4.6 Summary: Rent Term Structure and Optimal Lease-Term Length

SLIDE 20 2014 OnCourse Learning. All Rights Reserved. CHAPTER 30 CHAPTER 30 30.5 Other Leasing and Rent Issues SLIDE 21

2014 OnCourse Learning. All Rights Reserved. CHAPTER 30 30.5.1 Microspatial Trade-Offs and Synergies SLIDE 22 2014 OnCourse Learning. All Rights Reserved. 30.5.2 Why Percentage Rents? (Consideration of Optimal Rent Structure)

SLIDE 23 2014 OnCourse Learning. All Rights Reserved. CHAPTER 30 OnCourse Learning EXHIBIT 30-1 How Percentage Rent Reduces Operating Leverage SLIDE 24

2014 OnCourse Learning. All Rights Reserved. CHAPTER 30 CHAPTER 30 30.5.3 Why Concessions? SLIDE 25 2014 OnCourse Learning. All Rights Reserved.

CHAPTER 30 30.5.4 Optimal Asking Rent and Optimal Vacancy SLIDE 26 2014 OnCourse Learning. All Rights Reserved. CHAPTER 30 30.6 Chapter Summary

SLIDE 27 2014 OnCourse Learning. All Rights Reserved. CHAPTER 30 KEY TERMS lease graduated rent lessor

step-ups lessee revaluated rent ground lease indexed rent rent percentage rent

gross (full service) lease base rent net lease lease term triple net (NNN) lease concessions hybrid lease

lease covenants expense stops sublet flat rent lease options SLIDE 28 2014 OnCourse Learning. All Rights Reserved.

CHAPTER 30 KEY TERMS (continued) right of first refusal conflicting expectations effective rent microspacial considerations annuitized lease value (ALV)

rational expectations term structure of rents efficiency ratio intralease discount rate tenant mix synergies interlease discount rate anchor tenants

spot (or short-term) rents quoted (asking) rent releasing costs optimal asking rent holdup problem noisy price information complementary

rational vacancy expectations SLIDE 29 thin markets 2014 OnCourse Learning. All Rights Reserved.

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