Lease effective rent
Compare the rent actually earned after concessions and leasing costs.
Your scenario
Flat annual base rent; first months free; landlord TI and commission paid at commencement. Excludes recoveries, operating costs and residual improvements. Discounted rent is an equivalent level monthly receipt.
How the model works
Nominal effective rent = (total collected base rent − landlord TI − commission) ÷ area ÷ years. Discounted effective rent converts net present value to an equivalent level monthly receipt.
Worked illustration
5,000 SF at $30 for five years with six months free collects $675,000. Deduct $175,000 TI and $45,000 commission: $455,000 net, or $18.20/SF/year before property operating costs.
Normalize the lease on the same basis
Use the same area, term and cost convention when comparing proposals. This model assumes a flat face rent, stated free-rent months, landlord tenant improvements and the total dollar commission you enter. It does not calculate that commission from a percentage; use the actual agreement to determine the dollar input. It spreads net base-rent economics across the entire term and area. A broker’s effective-rent figure may treat commissions, concessions or the denominator differently. Ask for the underlying schedule. The linked SEC retail lease is a historical 2006 document example, not a current Chicago leasing-cost benchmark.
The nominal effective-rent output spreads cash without discounting. The discounted output instead deducts upfront TI and commission from discounted monthly rent, then converts that net present value into an equivalent level monthly receipt across the whole term. The entered annual nominal discount rate is divided by twelve, free rent occurs at the start, and receipts occur at month-end. This is a stated timing convention, not a claim that a real allowance or commission is paid on that date. Rent steps, percentage rent, expense reimbursements, early termination, residual improvements and variable operating costs also require a fuller model.
Evaluate what the higher face rent costs
Compare two actual proposals by changing one input at a time. A higher nominal rent can be offset by a larger allowance, longer rent-free period or more expensive commission. Keep any tenant-paid work separate from the landlord’s cash obligation. A reimbursement after completion can require the tenant to finance the work first; an allowance paid by the owner early changes landlord liquidity.
Next, investigate credit and reuse. Two equal effective rents can have different risk if one tenant has weak security, a specialized buildout or a termination right. Determine whether rent-free months still require expense reimbursements and whether the premises can be re-leased economically. A calculated average should sharpen the leasing decision, not replace the lease abstract and credit analysis.
What to check before relying on the result
Flat base rent and upfront leasing costs. Recoveries, rent steps, residual TI value and landlord operating obligations are excluded.
Model an adverse scenario as well as the expected outcome. Change one assumption at a time to identify what drives the result, then test combinations that could occur together. A property can meet a modeled financial threshold and still fail diligence, legal requirements or lender approval.
Keep the cash-flow definitions consistent
Distinguish recurring property operations from tenant improvements, leasing commissions, capital expenditure, financing costs and entity-level distributions. Verify whether reserves are expenses, funding requirements or cash movements in the documents you are analyzing. A cash-flow convention must remain consistent across the model and the comparison.
Research context
Consult the source material for this topic. The model is an original educational calculation, not a reproduction of a lender’s underwriting system. The initial numbers are hypothetical inputs rather than current market terms. No scenario inputs are transmitted or saved by this calculator.