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The RENT blog gives you the resources and tools you need to make the best decisions regarding your real estate needs.  We cover a broad range of subjects regarding office space, tenant needs and what to look for when investing in property.

FINANCIAL ANALYSIS INFORMS REAL ESTATE DECISIONS

FINANCIAL ANALYSIS INFORMS REAL ESTATE DECISIONS

A thorough financial analysis of direct and indirect costs is necessary to make an informed real estate decision.  Reliable financial analysis requires both technical ability and years of experience.  A successful analysis will yield the true occupancy cost of each alternative location for an ‘apples to apples’ comparison.  The analysis should take into account all significant costs associated with a location and the lease contract, including:

  • BASE RENTAL PAYMENTS, RENT ESCALATION & RENT ABATEMENT
  • OPERATING EXPENSE PASS-THROUGHS
  • TENANT IMPROVEMENT EXPENSES AND ALLOWANCES
  • OPTIONS (RENEWAL, EXPANSION, CONTRACTION, CANCELLATION)
  • ADD ON FACTOR (RENTABLE VS USABLE SQUARE FEET)
  • RELOCATION COSTS (MOVING & MARKETING EXPENSES)

The first step of an analysis is to identify and understand the costs (and, if appropriate, income) associated with alternative locations under consideration.  The next step is to project the total costs (and income) over the duration of the lease term or holding period on an annual basis.  The projected cash flows are then discounted by the space user’s cost of capital to yield the net present value.

The absolute occupancy cost and the present value basis are effective tools in the comparison of location alternatives.  Financial analysis is an important negotiation tool as well, as your analysis should assist you in determining the landlord’s bottom line and negotiating a deal that does not leave any money on the table.

Financial analysis is one of the most valuable services performed by a tenant representation broker.  When interviewing potential brokers, firms should be sure that candidates have the technical skills necessary to perform a sound financial analysis.

At Golden Group Real Estate, we specialize in tenant representation real estate services for office space users in the Chicago area, helping local business owners find office space and negotiate lease and purchase agreements. We never represent landlords, so we are prepared to negotiate aggressively on behalf of our tenant clients.

For more on Golden Group Real Estate, read about our real estate services. Let us know if we can help you find office space for rent or buildings for sale. Call us at (630) 805-2463, email us at troy@goldengroupcre.com, or enter your office space search criteria below.

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