CHAPTER 9 Conducting a Financial Analysis After you have selected a few options, your broker (or you) prepares a financial analysis. A financial analysis will consider the rent, fees, space, and anything else. This is looking at much more than just the annual lease amount. There are many more variables that go into this than the average tenant realizes. You should not rush to analyze all the factors that go into it. This takes place after you have a few properties picked out, and have received some proposals from landlords. Once it’s analyzed in great detail, you can move forward with your top choices.
IT IS A MISTAKE TO ONLY CONSIDER THE PRICE PER SQUARE FOOT.
Each proposal will have variables that differ in price: rent, operating expenses, parking fees, any free or reduced months of rent, escalation of rent, contributions for leasing improvements, add on factors, and any other fees. Your broker should prepare a spreadsheet that will project your total costs over the entire lease, on an annual basis. Your projected annual rate is subject to discounted cash flow analysis, a method of valuing all costs associated with a lease using the concept of time value of money. All your future cash flows, outgoing and incoming, are estimated and discounted using the cost of capital to give their present values. That produces the “net present value,” which is the bottom line of your occupancy.
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