Comments (8)

Mar 1, 2016

I'm sure someone else can break it down succinctly in 2 sentences, but in case you need the granularity, this is the resource I use:
https://www.procalc.com/2014/04/what-is-the-net-ef...

Best Response
Mar 1, 2016

Someone please correct me if I'm wrong, but look at it in terms of renting an apartment. 1 year lease, rent is $1,800/month. But say you get 1 month abatement. Normally, you would pay (1800)*(12) = $21,600 for the year. But given the 1 month free, it's really (21,600)-(1800) = $19,800. Over the course of the 1 year lease, you are EFFECTIVELY paying (19,800/12 months) = $1,650/month. It's a bit misleading, but thats what it is.

    • 3
Mar 1, 2016

I could be wrong too, but I think like thexaspect's link, he is trying use it as a tool to compare different leases using the whole NPV calc.

    • 1
Mar 1, 2016

NER is one of those metrics that is non-standard metric. I have seen several different ways to calculate it, but at my firm we do take the PV of the total effective rents and divide by sf.

Some places won't use PV, some will, etc. etc.

    • 1
Mar 2, 2016

I always took it as "Net Effective Rent = Contract Rent - Allowances and Tenant Concessions" but I agree with @okay24 that it's completely non-standard. When I was a leasing broker, we never discounted anything. When I worked with acquisitions, we did.

@D M - if the calculation you are doing is just free rent @PEREtzel 's calculation is your answer. If it includes other things, post them here.

    • 2
Mar 2, 2016
CRE:

I always took it as "Net Effective Rent = Contract Rent - Allowances and Tenant Concessions" but I agree with @okay24 that it's completely non-standard. When I was a leasing broker, we never discounted anything. When I worked with acquisitions, we did.

@D M - if the calculation you are doing is just free rent @PEREtzel 's calculation is your answer. If it includes other things, post them here.

This. How you're looking at it (Acq vs Sale vs Leasing) will influence how you calculate it.

    • 1
Mar 5, 2016

I got it, made it overly complicated and confused myself. Thanks for the help guys

Mar 21, 2016
Comment
    • 1