I'm building out a proforma to analyze fictional different leases (as a tenant) to compare and contrast each in order to find the best deal for us.
Currently the two metrics we are using is the capital requirement (Project cost - TI allowance), and net present value of the occupancy costs (NPV of sum rents + initial year capital requirement).
Are there any other metrics I can use to analyze these leases? Also, is this the correct approach, or should I be taking the NPV of the total cashflows from Y1-Y15, which would include initial year and capital expenditures, then the base rent for Y2-Y15.
If you are building a proforma in Excel, the TI allowance would be allocated in Year 0. So for example, let's say that you are giving $50,000 for TI. You would run the NPV formula from Year 1 to Year 15. The rents for each individual year should include the base rent plus any specific increases. Furthermore, the rent for the first year would be deducted by the amount of rental abatement provided. So let's say that the rent for the first year is $200,000 but with a 6 month abatement, you would only plug in $100,000 for the first year cash flow.
After calculating the NPV in Excel, remember to subtract the amount of TI provided to the tenant at Year 0, i.e. the $50,000. Excel is different than a TI financial calculator, as you have to do the extra step and remember to subtract any initial cash outlay.
Why would you not book the TI when the tenant rent commences vs Year 0?
Sorry for the delay. If you are performing a yearly NPV or IRR analysis on a yearly basis, you would essentially roll up the monthly revenue and expenses. To see the return on the TI spent, you would allocate it at time zero, and then analyze the investment.
If you were performing these calculations on a monthly basis, then you could argue to put the TI expense in month 1, provided you are doing the XNPV or XIRR calculation.
yeah I know how to calculate the NPV with rent roll, i guess to clarify, i was wondering if I should create a cash flows NPV as well that would include other operating expenses.. and that I did
The second question was more targeting other factors such as effective rent, and others (?)
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