NCJ Number
64602
Journal
APPRAISAL JOURNAL Volume: 47 Issue: 3 Dated: (JULY 1979) Pages: 332-339
Date Published
1979
Length
8 pages
Annotation
TOTAL RENT ANNUITIES OFFER THE UNIFORM, ANALYTICAL FORMAT NEEDED IN INFLATIONARY TIMES TO COMPARE ALTERNATIVE LEASE PROPOSALS WITH WIDELY VARYING TERMS.
Abstract
UNIFORM EXPENSE FORCASTING AND DISCOUNTED CASH-FLOW TECHNIQUES REDUCE COMPLEX LEASE PROPOSALS TO ONE CONSISTENT AND RELIABLE UNIT OF COMPARISON: THE TOTAL RENT ANNUITY (EQUIVALENT LEVEL ANNUAL OCCUPANCY COST). PROFESSIONAL RENT APPRAISERS ARE UNIQUELY EQUIPPED TO RENDER THIS VALUABLE ANALYSIS AND THEREBY ADMINISTER A POWERFUL ANTIDOTE FOR CORRUPTION OF GOVERNMENT LEASE NEGOTIATIONS. TO GUARD AGAINST CORRUPT CONTRACT NEGOTIATIONS, GOVERNMENT AGENCIES USUALLY INSIST THAT ALL BIDS CONFORM TO UNIFORM SPECIFICATIONS. HOWEVER, REAL ESTATE LEASE PROPOSALS DEFY THIS PROCEDURE FOR SEVERAL REASONS: (1) EVERY PROPERTY IS UNIQUE; (2) IN OUR FREE-MARKET ECONOMY, THE MARKET, NOT THE GOVERNMENT, SETS THE FRAMEWORK OF ACCEPTABLE LEASE TERMS; AND (3) THE PROPERTY OWNER, NOT THE PROSPECTIVE TENANT, WIELDS THE VETO POWER OVER LEASE TERMS FOR A SPECIFIC PROPERTY. THUS, THE TERMS OF GOVERNMENT LEASE PROPOSALS AND CONTRACTS VARY WIDELY. THE METHOD CAN BE USED TO ANALYZE THREE LEASE PROPOSALS IN WHICH THE TENANT IS THE DISTRICT OF COLUMBIA. ALL THE LEASES INVOLVE THE SAME PROPERTY. IN ORDER TO EVALUATE THESE PROPOSALS, THE APPRAISER NEEDS TO ADDRESS THREE POINTS: (1) TOTAL RENT FOR PROPERTY; (2) PROJECTED EXPENSES; AND (3) ARRANGEMENT FROM LANDLORD/TENANT EXPENSE SHARING. WITH THESE QUESTIONS ANSWERED, 20-YEAR FORECASTS OF TOTAL RENT FOR EACH LEASE PROPOSAL CAN BE CONSTRUCTED. IT MAY NOT ALWAYS BE EXPEDIENT FOR THE GOVERNMENT TO SELECT THE PROPOSAL WITH THE LOWEST TOTAL RENT ANNUITY IF, FOR EXAMPLE, SUPERIOR LOCATION OF THE HIGHER COST SPACE MORE THAN MAKES UP THE DIFFERENCE IN TOTAL RENT. HOWEVER, BEFORE EXECUTING A LEASE, GOVERNMENT OFFICIALS SHOULD KNOW THE TOTAL RENT ANNUITY UNDER VARYING PROPOSALS. TABLES AND FOOTNOTES ARE INCLUDED. (AUTHOR ABSTRACT MODIFIED--PRG)