You Are the Landlord of a Building with Two Tenants

question 12

Essay

You are the Landlord of a building with two tenants A and B). Use the following information to calculate the projected) Year 3 building operating expenses, assuming 100% gross leases for all tenants: Each tenant occupies 50% of net rentable space. Tenant A has a fixed lease for the next ten years, and Tenant B has a lease which expires at the end of year 2 beginning of year 3). First year Operating Expenses are $1000, and are projected to increase 5% per year. Building expenses are 60% fixed, 40% variable. Assume that Tenant B has a 70% probability of exercising an extension option for year 3. If they do not renew, assume the space will be vacant for 3 months, and then occupied by a similar tenant in terms of operating expenses). Show your work.
1,000 x 1.05)^3 = 1,157.6
In case of renewal,
1,157.6 x 70% = 810.3
In case of non-renewal
1,157.6 - 1,157.6 x 40% x ½ x ¼)) x 30% = 329.9
810.3 + 329.9 = 1,140.2

---

Definitions:

Usury Laws

Usury laws are regulations governing the amount of interest that can be charged on loans, aimed at preventing exorbitant or unfair interest rates.

Price Ceiling

A government-imposed limit on how high a price can be charged for a product, service, or commodity to protect consumers from rapid price increases.

Price Floor

A minimum allowable price set above the equilibrium price, preventing the market price from falling below a certain level.

Quantity Demanded

It refers to the total amount of a good or service that consumers are willing and able to purchase at a given price within a specified time period.