How is Total Lease Value Calculated?

How is Total Lease Value Calculated?

• A. Square Footage x Rental Rate x Lease Term
• B. Annual Rent x Lease Term
• C. Net Operating Income x Cap Rate
• D. Landlord Improvements x Occupancy

Answer: (A)

Total Lease Value is the total rent the landlord collects over the life of the lease for the leased space. If the rent is quoted per square foot per year, you multiply the space by the rent per square foot per year and then scale by how many years the lease lasts. In other words, space × rent per SF per year × lease term gives the total rent over the term, which is exactly the formula shown. This is the most direct way to capture the full payment stream from the lease. If you instead start from annual rent, you could also multiply by the lease term, but that requires you to know what the annual rent is. The other options relate to different concepts: NOI × cap rate estimates property value, not lease cash flow, and landlord improvements × occupancy isn’t a standard way to calculate total rent.

Total Lease Value is the total rent the landlord collects over the life of the lease for the leased space. If the rent is quoted per square foot per year, you multiply the space by the rent per square foot per year and then scale by how many years the lease lasts. In other words, space × rent per SF per year × lease term gives the total rent over the term, which is exactly the formula shown.

This is the most direct way to capture the full payment stream from the lease. If you instead start from annual rent, you could also multiply by the lease term, but that requires you to know what the annual rent is. The other options relate to different concepts: NOI × cap rate estimates property value, not lease cash flow, and landlord improvements × occupancy isn’t a standard way to calculate total rent.