How it works
The cash flow is the list of money in and out by year. Write that list first.
- Write a row for each year. Put rent and extras in. Put credits in the year they land.
- Choose one rate. Write it next to the table so no one can hide it.
- Divide later cash by one plus the rate, raised to the year number.
- Add the year values. Compare that sum to the other option on the same rate.
Formula in words. For each year: cash that year divided by (1 + discount rate) to the power of the year. Then add the years.
| Input | Meaning |
|---|---|
| Base rent | The contract rent before extras |
| Operating extras | CAM, tax, and insurance if the tenant pays them |
| Incentives | Free rent and tenant improvement allowance |
| Term length | The years you will actually occupy |
| Discount rate | How hard later cash is shrunk |
Worked example
Here is a teaching sample. It is not customer data and not a result from a live client.
| Metric | Lease A | Lease B |
|---|---|---|
| Start rent | $40,000 | $37,200 |
| Year-1 extras | $9,000 | $9,630 |
| Year-1 credit | $15,000 | $8,250 |
| Sample NPV | $364,469 | $353,746 |
| Year | Rent | Extras | Credit | Cash out | Value today |
|---|---|---|---|---|---|
| Year 1 | $40,000 | $9,000 | $15,000 | $34,000 | $31,481 |
| Year 2 | $41,600 | $9,270 | $0 | $50,870 | $43,613 |
| Year 3 | $43,264 | $9,548 | $0 | $52,812 | $41,924 |
| Year 4 | $44,995 | $9,835 | $0 | $54,830 | $40,302 |
| Year 5 | $46,794 | $10,130 | $0 | $56,924 | $38,742 |
| Year 6 | $48,198 | $10,434 | $0 | $58,632 | $36,948 |
| Year 7 | $49,644 | $10,747 | $0 | $60,391 | $35,238 |
| Year 8 | $51,133 | $11,069 | $0 | $62,202 | $33,606 |
| Year 9 | $52,667 | $11,401 | $0 | $64,068 | $32,050 |
| Year 10 | $54,247 | $11,743 | $0 | $65,990 | $30,566 |
| Sample NPV | — | — | — | — | $364,469 |
How to read the sample
Sample NPV for the teaching lease is about $364,469. A second path lands near $353,746. That gap is a talking point, not a promise.
A build-out check arrives while rent is still low. If one path wins only because a credit sat in the wrong year, start over.
Year notes for the teaching lease
- Year 1 of the teaching lease has rent of $40,000.
- Shared building cost is $9,000.
- A credit of $15,000 lowers the cash you pay that year.
- Cash out this year is about $34,000. A build-out check arrives while rent is still low.
- Later cash gets a shrink for time. At 8 percent, year 1 is worth about $31,481 today.
- Next, year 2 rent is $41,600.
- CAM, which is a shared building cost, is $9,270.
- There is no credit in this year.
- You pay about $50,870 this year after extras and credits. The step-up starts. The credit is gone.
- Time shrinks later cash. At 8 percent, year 2 is worth about $43,613 today.
- Then year 3 rent is $43,264.
- Extras for the building come to $9,548.
- Credits skip this year.
- The net cash this year is about $52,812. Escalation is now the main story.
- Waiting has a price. At 8 percent, year 3 is worth about $41,924 today.
- After that, year 4 rent is $44,995.
- The shared building cost this time is $9,835.
- No extra credit shows up this year.
- Cash out this year is about $54,830. Later rent is bigger, but we shrink it more.
- Later cash gets a shrink for time. At 8 percent, year 4 is worth about $40,302 today.
- In year 5 of the teaching lease, rent is $46,794.
- Shared building cost is $10,130.
- There is no credit in this year.
- You pay about $56,924 this year after extras and credits. The last year still belongs in the sum.
- Time shrinks later cash. At 8 percent, year 5 is worth about $38,742 today.
- Year 6 of the teaching lease has rent of $48,198.
- CAM, which is a shared building cost, is $10,434.
- Credits skip this year.
- The net cash this year is about $58,632. Keep this later year in the sum for the sample.
- Waiting has a price. At 8 percent, year 6 is worth about $36,948 today.
- Next, year 7 rent is $49,644.
- Extras for the building come to $10,747.
- No extra credit shows up this year.
- Cash out this year is about $60,391. The row still belongs in the sum for the long path.
- Later cash gets a shrink for time. At 8 percent, year 7 is worth about $35,238 today.
- Then year 8 rent is $51,133.
- The shared building cost this time is $11,069.
- There is no credit in this year.
- You pay about $62,202 this year after extras and credits. Keep this later year in the sum for the long path.
- Time shrinks later cash. At 8 percent, year 8 is worth about $33,606 today.
- After that, year 9 rent is $52,667.
- Shared building cost is $11,401.
- Credits skip this year.
- The net cash this year is about $64,068. The row still belongs in the sum for the long path.
- Waiting has a price. At 8 percent, year 9 is worth about $32,050 today.
- In year 10 of the teaching lease, rent is $54,247.
- CAM, which is a shared building cost, is $11,743.
- No extra credit shows up this year.
- Cash out this year is about $65,990. Keep this later year in the sum for the long path.
- Later cash gets a shrink for time. At 8 percent, year 10 is worth about $30,566 today.
Add those year values. The sample NPV for the teaching lease is about $364,469. This is a teaching sample, not a client result.
Trusted sources
These are public references. They are not endorsements and not client results.
How to use this with OccupancyNPV
This page answers the concept. OccupancyNPV applies it inside a DealWorkspace: enter lease scenarios, review cash-flow and occupancy cost, then compare NPV and discount-rate sensitivity. OccupancyNPV NPV is not the same as a face-rent comparison. OccupancyNPV is not a CRM or lease-administration suite, and this page is not legal or investment advice.
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