Professional Documents
Culture Documents
Real Estate Finance and Investments 16th Edition Brueggeman Solutions Manual
Real Estate Finance and Investments 16th Edition Brueggeman Solutions Manual
Question 9-1
How does the use of leases shift the risk of rising operating expenses from lessor to the lessee?
Leases determine how much risk will be borne by the lessor versus the lessee. Future increases in market rent are
compensated for by including an inflationary adjustment, such as a CPI adjustment. In the case of a CPI
adjustment, the risk is shifted to the lessee, because the change in rents is not known in advance. As the lessee is
responsible for any unexpected increases in the level of inflation, the lessor is insured that the real value of the
lease will be preserved. The lessor can shift additional risk to the lessee by including net lease or expense stop
provisions in the lease. It is important to note, however, that we would expect the lessor to accept a lower base rent
as the burden of risk is shifted to the lessee.
Question 9-2
What is the difference between base rents and effective rents?
Base rents reflect rent that will be paid per rentable square foot of leased space. It does not include additional items
such as finish out costs, expense pass throughs and other costs that are included when calculating effective rents.
Question 9-3
What is meant by usable vs. rentable space?
Usable space is the area actually occupied by the tenant. Rentable space is usable space plus a share of common
area in a property which is included in the load factor.
Question 9-4
What are CAM charges?
These are expenses related to common area maintenance of hallways, lobbies, etc. that are usually prorated and
passed on to tenants.
Question 9-5
What are (a) pass through expenses, (b) recoverable expenses, (c) common area expenses? Give examples of each.
Pass throughs are expenses such as electricity, insurance, and property taxes that are billed directly to tenants on the
basis of rentable area that they occupy.
Recoverables are expenses incurred by owners for specific expenses identified in a lease such as security,
maintenance, utilities, etc. and are pro-rated and billed to tenants.
Common areas include mallways, parking areas, lobbies, and hallways. Expenses related to these areas are referred
to as common area expenses.
Question 9-6
What is an estoppel? Why is it used?
It is a legal document used in many circumstances. In real estate, it is used by prospective investors to determine
factual information with tenants, such as amount of any rent owed, improvements promised by the current owners,
etc.
Question 9-7
What is meant by "loss to lease"?
Many leases reflect market conditions and rents that existed when the lease was executed. Many financial statements
estimate gross rental revenue based on (1) all rental space re-leased today at prevailing rents and compare that
amount to (2) actual rental revenue based on leases that have been executed at various times in the past. The
difference between (1) and (2) is "loss to lease", or the difference between current market rents and rents actually
collected based on lease terms with each tenant.
Question 9-8
© 2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No
reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
What types of expenses would property owners pay when operating and maintaining common areas? Give examples
for office, retail, and warehouse properties.
Common area are for the benefit of all tenants. An example for office properties would be the lobby area. For retail
a good example is enclosed malls where all the area not occupied by the store itself is common area to allow
pedestrians to walk from store to store and use for special events. Warehouse properties might have a loading dock
that is shared by all tenants. All of these property types might have parking as a common area. The tenants would
often pay a pro-rata portion of the operating expenses related to these common areas such as property taxes,
insurance, utilities and maintenance.
Problem 9-1
a)
Year 1 2 3 4 5
Net Rent $15.00 16.50 18.00 19.50 21.00
Year 1 2 3 4 5
Exp. CPI 3.00% 3.00% 3.00% 3.00%
Net Rent $16.00 16.48 16.97 17.48 18.01
Year 1 2 3 4 5
Gross rent $30.00 $30.00 $30.00 $30.00 $30.00
Less: expenses $9.00 10.00 11.00 12.00 13.00
Net rent 21.00 20.00 19.00 18.00 17.00
© 2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No
reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Year 1 2 3 4 5
Exp. CPI 3.00% 3.00% 3.00% 3.00%
Gross rent $22.00 $22.66 $23.34 $24.04 $24.76
Less: expenses $9.00 10.00 11.00 12.00 13.00
Plus: reimbursement 0.00 1.00 2.00 3.00 4.00
Net rent 13.00 13.66 14.34 15.04 15.76
© 2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No
reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
b) With the first type of lease, the tenant bears the risk of any unexpected change in operation expense. For the lessor,
although the lease includes a step-up, higher than anticipated inflation could erode the real value of the rental income.
The second alternative includes a CPI adjustment rather than fixed step-ups. The risk of unexpected inflation is shifted
to the lessee.
The third alternative is a gross lease. This is much riskier for the lessor than any of the net leases. The lessor bears the
risk if operating expenses differ from what is expected.
The fourth one is a gross lease that combines a CPI adjustment with an expense stop. This shifts the risk of any
increases in expenses to the tenant, while retaining any decrease in expenses.
Overall, if we rank the alternatives in terms of risk to the lessor, from the least risky to the most risky, the order should
be: Gross Lease with Expense Stop and CPI Adjustments, Net Lease with CPI Adjustments, Net Lease with Steps and
Gross Lease. That is: 4<2<1<3.
c) Based on the analysis in (b), we might expect the effective rents for the four alternatives should exhibit the same order,
from the least to the most risky to the lessor: 4<2<1<3. As the results showed in (a), the effective rents for four
alternatives do rank the same way. The one with the most risk is also the one that offers the greatest effective rent.
Problem 9-2
(a) Total rentable area in building if leased to one tenant:
300,000 (total building area) – 45,000 (non-rentable area) = 255,000 sqft (rentable)
(d) If common area in lobby is included in load for all tenants, then 7th floor load could be adjusted
upward as follows:
( 7th Floor Load ) x l+ ( Other Common Area in Building / Total Building Rentable) or
1.12 x l+ (30,000 255,000) or 1.12 x 1.118* = 1.25
© 2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No
reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Problem 9-3
(a)
Year 0 1 2 3 4 5
Cash Flows $20 $21 $22 $23 $24
PV @ 10% = $82.68
PV @ 10% = $97.84
Note: Effective rent paid to the owner is still greater with these allowances than is the case in (a).
Therefore, lease (b) is better for owner.
(c)
Year 0 1 2 3 4 5
Cash Flows $300,000 $23 $24 $25 $26 $27
The effective rent to owner of Atrium is lower than both alternatives (a) and (b) above, even if the buyout
is paid monthly during year (1). Net rents would be $8 psf in year (1) and effective rent would be
$21.21, which would continue to be lower than both cases (a) and (b) above. Therefore, when compared
to (a) and (b), this alternative is not a good deal for the owner of Atrium.
Problem 9-4
In-line occupied area = 1,300,000 square feet
Common Area = Total area – Anchor tenant occupied area - In-line occupied area = 700,000 square feet
Total Maintenance cost = common area * maintenance cost psf = 700,000*$8 = $5,600,000
© 2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No
reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Anchor contribution to CAM = $2 per s.f. x 800 s.f. = $1,600,000
CAM(Additional rent per square feet covered by in-line tenant) = (total maintenance cost – anchor contribution) / In-line
occupied area = ($5,600,000 - $1,600,000) /1,300,000 = $3.08 per square feet
In line tenants would have to pay $3.08 per s.f. in CAM charges, plus their base rent per square foot of rentable area.
Problem 9-5
(A) Option A is best because it gives higher effective rent psf. See the calculations below
Option A
Year 1 2 3 4 5
Base Rent $25.00 $ 26.00 $ 27.00 $ 28.00 $ 29.00
CAM $ 3.00 3.18 3.37 3.57 $ 3.79
Net Rent $28.00 29.18 $30.37 $ 31.57 $ 32.79
Present Value =NPV(10%,Rent_each_year) $114.31
Effective rent/square $ 31.71
foot
Option B
Year 1 2 3 4 5
Base Rent $23.00 $24.00 $25.00 $26.00 $27.00
CAM $ 3.00 $ 3.18 3.3708 3.57 3.79
Net Rent $26.00 $27.18 $28.37 $29.57 $30.79
Sales $850,000.000 935000 1028500 1131350 124485
Overage Rent $0- $2,800 $10,280 $18,508 $27,559
PV of Net Rent = NPV(10%,Ret_each_year) $ 1,013,396.12
PV of Overage Rent = NPV(10%,overage rent) $ 36,949.02
PV of Total Rent Revenue = Net Rent + Overage rent) $ 1,050,345.14
Effective rent/square foot = Effective rent/Rentable_ area $ 29.14
(B) Even when sales is expected to grow by 20% per year, option A is still better than option B because it gives effective
rent of $31.71 compared to effective rent of $30.73 for option B.
Year 1 2 3 4 5
Base Rent $ 23.00 $ 24.00 $ 25.00 $ 26.00 $ 27.00
CAM $ 3.00 $ 3.18 $ 3.37 $ 3.57 $ 3.79
Net Rent $ 26.00 $ 27.18 $ 28.37 $ 29.57 $ 30.79
Sales $850,000 $ 1,020,000 $ 1,224,000 $ 1,468,800 $ 1,762,560
Overage Rent $ - $ 9,600.00 $ 25,920.00 $ 45,504.00 $ 69,004.80
© 2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No
reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Another random document with
no related content on Scribd:
Alfonso, Prince of Asturias, 338–41
Amadeus of Savoy, King of Spain, 224;
claim to the throne, 224–5;
his courage, 225–6, 228–31, 236;
Court life, 232–4;
abdication, 240–1
Angelo, Michael, the painter, 212
Aranjuez: revolution at, 35, 42, 44, 53;
arrival of Maria Cristina at, 107;
Isabella II. at, 174
Arellano, Ramirez, 87, 91
Argüelles, Agustin, guardian of Isabella II., 142–3, 146–7
B
Ballesteros, General, 101, 103
Baso, Secretary of Ferdinand VII., plot of, 95
Bayonne, 61;
Treaty of, 67;
Maria Cristina at, 134
Beauharnais, Marquis of, French Ambassador in Spain, 14,
39
Beira, Princess of, 106
Benavides, Cardinal, 176–7, 277
Beramendi, 202–5, 208–9
Berthémy, 73, 74
Bonaparte, Joseph, King of Spain, 68–70
Bonaparte, Lucien, Prince of Canino, 6, 24
Bonaparte, Napoleon: proposes Spanish marriage, 10;
has letter from Charles IV., 6, 19;
designs on the Peninsula, 24, 25–35, 38, 51;
plots against the Royal Family of Spain, 53–78;
enters Madrid, 68;
letter to Ferdinand VII., 53–6
Brabo, Gonzalez, Prime Minister, 148, 152, 156, 206–7
Bulwer, Lord Lytton, British Ambassador in Spain, 164–5, 178,
189–90, 217–18
C
Cabrera, Juan, 228
Caciquism, 284–5, 343
Cadiz, Constitution of 1812, 125
Calomarde, Minister, 110–12
Campos, Martinez, 292–3
Canalejas, President, 323–4
Canovas, Conservative leader, 272–3, 274–5, 288–9;
letter to Ferretti, 291;
death, 299–300
Carlos, Don, claimant to Spanish throne, 83, 108;
intrigues, 111;
refuses oath of allegiance, 117;
an exile, 119;
appears before Madrid, 128, 137, 215
Carlos, Don Juan, son of preceding, 191
Carlos, Don, Count of Montemolin, son of preceding, 161;
rebellion of, 191;
letter to Isabella II., 191–2
Carlos, Don, son of Alfonso XII., 339
Caroline, Queen, of Naples, 9;
opposition to Napoleon, 10
Castelar, Emilio, 225, 287–8, 295, 298
Chamorro, 84, 85
Charles III., 2;
opposes French marriage, 6
Charles IV., 2, 3;
quarrel with Ferdinand, 5–18;
writes to Napoleon, 19, 43, 45, 59;
at Bayonne, 61;
letter to his son, 63;
abdication, 67
Concha, Manuel de la, General, plot of, 143–5
Cuba, insurrection, 292–3, 297
D
Dulce, General, 143–4, 153, 183–4
E
Erroz, chaplain to Ferdinand VII., plot of, 95
Escoiquiz, tutor to Ferdinand VII., 4;
dismissed, 5;
influence at Court, 3, 6, 7, 50
Espartero, General, 127;
Captain, General, and Grandee, 137–8;
Regent, 140–2, 145, 187, 218–19
Estancelin, 170–1
Eulalia, Doña, 261;
marriage, 278–9
F
Ferdinand VII., Prince of Asturias, 1;
marriage, 6;
hatred of Godoy, 7;
intrigues against his parents, 9–23;
writes to Napoleon, 14, 53, 74–5;
duplicity, 25–9;
receives letter from Napoleon, 53–6;
at Bayonne, 61;
scene with his parents, 65–7;
letter to Berthémy, 73;
and George III., 77;
King, 79;
disposition, 85–6;
home life, 79–104;
second marriage, 83;
third marriage, 92;
fourth marriage, 107;
plot of Baso, 95;
martyr to gout, 101, 108;
attitude towards the revolution, 99–104;
increasing weakness, 110–12;
recovers, 113;
gratitude to his wife, 115–17;
letter to Don Carlos, 118;
death, 121
Ferdinand, Prince of Bavaria, 328–9, 331, 339
Ferretti, Figuerola, Colonel, 242–3;
diary of, 244–6, 249, 291, 298–9, 302;
greeted by Alfonso XIII., 303, 314
Fouché, 76
Francisco, Duke of Cadiz (Infante), 106, 146, 165;
marries Isabella II., 166, 174
G
George III., King of England, 77
Girgenti, Count Frederick, 223
Godoy, Manuel, Prince de la Paz, 2, 23;
overthrow, 24–52;
seized by the guard, 29;
house ransacked by the mob, 30
Goya, painter, and Wellington, 72–3
H
Halem, Juan Van, 87, 91
Henry, Prince of Bourbon, 222;
killed in duel, 222
I
Isabella II.: accepted as future Queen, 120;
plot to seize, 143–5, 147;
proclaimed Queen at thirteen years, 149;
forced to sign a decree, 154;
authorizes her mother’s marriage to Muñoz, 157;
popularity, 157–8;
marriage proposals, 161, 164;
marriage, 166;
attempt on life of, 167–9;
separation, 174–7;
goes to Aranjuez, 174;
returns, 177;
reconciled to her husband, 178;
attempted assassination of, 181–2;
popularity wanes, 183;
mutiny against, 184;
insurrection against, 194;
coldness towards her sister, 198;
at San Sebastian, 207;
dethroned, 216;
character, 216–221;
intrigues against, 208;
in Paris, 221, 231;
present at the wedding of Alfonso XII., 264
Isabella (Infanta), 180;
marriage proposals, 207, 223, 329, 331, 339
Isabella of Braganza, second wife of Ferdinand VII., 83, 86;
death, 91
Izquierdo, 39
J
Janotha, Miss, 318
Josefa (Infanta), 185
L
La Granja: secret societies at, 124, 130;
Maria Cristina at, 134;
Queen Victoria at, 317, 341–2
Lacy, General, 98
Leon, Diego de, General, plot of, 143–5
Leopold, Charles, Baron de Colly, 76
Luisa Carlota of Naples, 106, 136–7, 142, 146–7, 163
Luisa Ferdinanda (Infanta), 144, 166;
marriage, 166–7, 169–72, 197
M
Macanáz, Pedro, Minister of Justice, 80–1
Madrid: riot of May 2, 1808, 64;
in hands of Napoleon, 68;
cholera at, 123;
Don Carlos appears before, 128, 129
Marfori, Don Carlos, 209–10
Maria Antonia of Naples: marriage, 6;
correspondence with Queen Caroline, 9–10;
dissensions of, 11;
death, 12
Maria Cristina of Naples, fourth wife of Ferdinand VII., 106–
21;
Regency of, 122–41;
her beauty and charm, 107;
influence at Court, 108–9;
manifesto, 114;
decree, 126;
conduct in face of the rebels, 125–7;
infatuation for and marriage with Muñoz, 129–33, 156;
daughter by Muñoz, 134–5, 138;
goes to Valencia, 140;
to France, 141;
returns to Spain, 156;
visits her daughter, 173;
unpopularity, 185–7;
leaves Spain, 187;
returns, 193, 242;
influence over Alfonso XII., 271–2;
grief at husband’s death, 276–7;
Regent, 278–80, 264–304;
devotion, 294–6, 306–8;
decree as to, 310, 340
Maria Cristina of Austria, second wife of Alfonso XII., 262–5
Maria de las Mercedes, Princess of Asturias, 250, 339
Maria Francisca de Asis, wife of Don Carlos, 83
Maria Josefa Amelia, third wife of Ferdinand VII., 92–5;
death, 105;
her character, 105–6
Maria Luisa of Parma: marries Charles IV., 2;
Queen, 3;
infatuation for Godoy, 4, 8;
letters to her daughter, 30–4, 39;
correspondence, 40–3, 47, 59;
at Bayonne, 61
Maria Luisa, Princess of Etruria, 34;
writes to Murat, 42, 144
Maria Mercedes, Queen of Alfonso XII., 256–7;
death, 258–9;
funeral, 259–60
Maria Teresa (Infanta), 267, 319, 321, 328–9, 331, 339
Maria Victoria del Pozzo, wife of Amadeus, 226, 230, 237–8,
240
Marie Amélie, wife of Louis Philippe, 213
Maura, 294, 312, 319
Mercedes, Princess of Asturias, 265–7
Merino, Manuel Martin, attempts to assassinate Isabella II.,
180;
executed, 181
Miraflores, Ambassador, 123, 159, 161–2, 179
Montijo, Countess of, 250–1
Montpensier, Duke of, 162;
marries Infanta Fernanda, 166, 169, 222, 278–9
Moret, Minister, 303, 311–12
Morillo, General, 103
Muñoz, Fernando: marries Maria Cristina, 129, 130;
Duke of Rianzares, 133, 156
Murat, Grand Duke of Berg, General: in Spain, 27;
at Madrid, 37–9, 43;
correspondence, 43–6, 51
N
Nakens, 274, 300
Narvaez, Ramon Maria, General, 128, 148, 150;
War Minister and President, 159, 163;
arrogance, 188–90, 194, 210;
exiled to Paris, 211, 213;
marriage, 214;
Prime Minister, 214
Nelson, 11
O
O’Donnell, Leopold, General, 138, 183–4, 188–9, 194–7;
death, 206
Olozaga, Salustiano, President, 150–1, 154–5
P
Pacheco, Francisco, 173, 177
Pavia, General, 243, 245–7
Paz, Doña de la, 261;
marriage, 267
Philippe, Louis, 161, 166;
fall of, 172
Pilar, Doña, 261
Pius IX., 207
Prim, General, 122, 221, 224;
murdered, 227
R
Riego, Captain, General of Galicia, 96–7, 101, 104
Romanos, Mesoneros, historian, 70, 81–2, 91
Rosa, Martinez, Prime Minister, 124
Rovigo, Duke of, 65
Rubio, Juan, historian, 281–2, 298–9
S
Sagasta, Liberal leader, 272–4, 286–7, 295, 299
Salamanca, Premier, 174, 177–8, 288
San Gil, insurrection of, 194, 239
San Luis, Count of, 183, 219
San Rafael, Marquis of, 239
Serrano, Francisco, General, 150–1;
influence, 173, 178, 216, 221;
Regent, 224, 248
Seville, Duke of, condemned, 290, 295
Silvela, Minister, 300, 302–3
T
Tacon, General, 216
“Trágala,” popular song, 101, 104
V
Valcarcel, Doña Teresa, 133–4
Vicente Richard, conspirator, 86, 87
Victor Emmanuel, King, 226
Victoria Eugénie, Queen of Alfonso XIII.: chapter on, 314–44;
bomb outrage on, 316–17;
grants audience to authoress, 320;
personal traits, 322, 324–5, 327
Victoria, Queen of England, letter of, 190, 217, 315
Vinuesa, Matios, Canon, plot of, 99
W
Wellington, Duke of, 70;
proclamation to Madrid, 71;
and Goya, 72–3
Z
Zamora, Leocadia, 211–12
Zorilla, Ruiz, 224
BILLING AND SONS, LTD.,
PRINTERS, GUILDFORD
Transcriber's Notes
Updated editions will replace the previous one—the old editions will
be renamed.
1.D. The copyright laws of the place where you are located also
govern what you can do with this work. Copyright laws in most
countries are in a constant state of change. If you are outside the
United States, check the laws of your country in addition to the terms
of this agreement before downloading, copying, displaying,
performing, distributing or creating derivative works based on this
work or any other Project Gutenberg™ work. The Foundation makes
no representations concerning the copyright status of any work in
any country other than the United States.
• You pay a royalty fee of 20% of the gross profits you derive from
the use of Project Gutenberg™ works calculated using the
method you already use to calculate your applicable taxes. The
fee is owed to the owner of the Project Gutenberg™ trademark,
but he has agreed to donate royalties under this paragraph to
the Project Gutenberg Literary Archive Foundation. Royalty
payments must be paid within 60 days following each date on
which you prepare (or are legally required to prepare) your
periodic tax returns. Royalty payments should be clearly marked
as such and sent to the Project Gutenberg Literary Archive
Foundation at the address specified in Section 4, “Information
about donations to the Project Gutenberg Literary Archive
Foundation.”
• You comply with all other terms of this agreement for free
distribution of Project Gutenberg™ works.
1.F.
1.F.4. Except for the limited right of replacement or refund set forth in
paragraph 1.F.3, this work is provided to you ‘AS-IS’, WITH NO
OTHER WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR ANY PURPOSE.
Please check the Project Gutenberg web pages for current donation
methods and addresses. Donations are accepted in a number of
other ways including checks, online payments and credit card
donations. To donate, please visit: www.gutenberg.org/donate.
Most people start at our website which has the main PG search
facility: www.gutenberg.org.