Commercial leases have become more and more complex. When assisting a client with a leasing decision that involves more than one option, it is important to dive into he details and prepare a true “apples to apples” comparison of each. Over the lease term, many factors should be taken into consideration such as escalations, operating expenses, caps, abated rent, additional fees and tenant improvements costs.
Once the annual occupancy costs are determined, a time value of money analysis should be prepared in order to determine the true cost over the time period of the lease transaction weighing the timing of cash outlay, after a discount rate. Since the discount rate will greatly impact the outcome of this analysis, having input from the owner is necessary to determine their cost of capital.
Using this methodology provides the owner with a solid financial model in order to make an informed decision.