Suppose the Lease on a Certain Space Will Expire at the Beginning

Suppose the lease on a certain space will expire at the beginning of this year. You believe that the probability of the existing tenant renewing is 50 percent. If he renews, you will need to spend only an estimated $5.00/SF to upgrade his space. If he does not renew, it will take $25.00/SF to modernize the space, even then you expect 6 months of vacancy. What expected cash flow forecast should you put in your pro forma for this space, if you expect triple-net market rents on new leases to be $20/SF?

A) $17.50/SF
B) $15.00/SF
C) Zero
D) - $10.00/SF
E) -$5.00

Correct Answer:

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