commercial lease npv
Why use NPV when comparing commercial leases?
Why use NPV when comparing commercial leases?
Use NPV when two leases pay on different calendars. It puts both bills in today's dollars so a cheap first year cannot hide a heavier later stack.
This page belongs to a validation / pilot concept. It is not generally available. Payment is not collected.
Questions this page also answers
When is NPV the right compare tool?
When two leases pay on different dates or carry different credits.
Does total cash already answer this?
No. Equal totals can hide different timing.
What else still matters?
Space quality and legal terms still sit beside the number.
What rate should you show?
One visible rate on both options, then a nearby test.
Plain-language definition
NPV means net present value. It is the sum of later cash after you shrink each year.
A comparison needs one rate and one timeline. NPV is that shared field.
Aggregate cost adds years at face value. NPV prices waiting.
Tenants use the lower liability. Landlords read the same walk the other way.
The why is timing, not a slogan about sophistication.
This page sits under Commercial lease NPV.
Need the next step? Open What is NPV?.
See How is lease NPV calculated? when you want the nearby walk.
Open NPV vs total lease cost if this page is not the last step.
Investopedia defines net present value as later cash brought back to today. See Investopedia on NPV.
Why it matters
Two office offers can match on total cash and still rank differently after time.
A credit today is worth more than the same credit in year four.
A CFO will ask why the cheaper first year lost. NPV is the answer.
Without it, a broker is arguing stickers.
How it works
- Write both cash lists on one calendar.
- Add extras the tenant still pays.
- Place credits in the year they land.
- Pick one visible rate.
- Add the shrunk years and read the gap.
Formula in words. Why-NPV = same-rate walk on both options, not a single-year sticker.
| Input | Meaning |
|---|---|
| Start rent | First-year rent before extras |
| Extras | CAM, tax, or insurance the tenant still pays |
| Credits | Free rent or build-out money |
| Term | How many years the cash list runs |
| 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 | Path A | Path B |
|---|---|---|
| Start rent | $42,000 | $39,060 |
| Year-1 extras | $9,000 | $9,630 |
| Year-1 credit | $12,000 | $6,600 |
| Sample NPV | $373,948 | $361,506 |
| Year | Rent | Extras | Credit | Cash out | Value today |
|---|---|---|---|---|---|
| Year 1 | $42,000 | $9,000 | $12,000 | $39,000 | $36,111 |
| Year 2 | $43,260 | $9,270 | $0 | $52,530 | $45,036 |
| Year 3 | $44,558 | $9,548 | $0 | $54,106 | $42,951 |
| Year 4 | $45,895 | $9,835 | $0 | $55,730 | $40,963 |
| Year 5 | $47,271 | $10,130 | $0 | $57,401 | $39,066 |
| Year 6 | $48,689 | $10,434 | $0 | $59,123 | $37,258 |
| Year 7 | $50,150 | $10,747 | $0 | $60,897 | $35,533 |
| Year 8 | $51,655 | $11,069 | $0 | $62,724 | $33,888 |
| Year 9 | $53,205 | $11,401 | $0 | $64,606 | $32,319 |
| Year 10 | $54,801 | $11,743 | $0 | $66,544 | $30,823 |
| Sample NPV | — | — | — | — | $373,948 |
Sample NPV for Why-NPV sample is about $373,948. A second path lands near $361,506.
Year 1 of Why-NPV sample has rent of $42,000.
Shared building cost is $9,000.
A credit of $12,000 lowers the cash you pay that year.
Cash out this year is about $39,000. Year one carries the Why-NPV sample credit.
Later cash gets a shrink for time. At 8 percent, year 1 is worth about $36,111 today.
Next, year 2 rent is $43,260.
Assumptions
- The Why-NPV sample uses one visible 8 percent rate.
- Credits hit in year one unless the page says otherwise.
- Both options share the same extra basis.
- No percentage rent sits in this teaching walk.
Edge cases
A mid-year start needs a stub period, not a fake full year.
A credit that pays later must move to that later year.
A cap on extras changes the later risk, not the first sticker.
Common mistakes
- Calling NPV useful and then ranking on year-one rent.
- Changing the rate on each landlord.
- Leaving CAM off the net path.
- Treating a lower NPV as a better location.
Decision implications
Use NPV when two leases pay on different calendars. It puts both bills in today's dollars so a cheap first year cannot hide a heavier later stack.
If the gap is thin, show a second rate before anyone picks.
If one path wins only from a mistimed credit, rebuild the list.
This page answers one question. Nearby pages cover the next step.
See What is NPV? when you need that next step. Open How is lease NPV calculated? for the nearby walk. Use NPV vs total lease cost if you want a second path.
Limits
- The number does not score daylight, transit, or floor plate.
- The number does not replace a legal read.
- Do not let one metric pick a space the team cannot use.
- Do not use this page as a clone of a nearby question.
U.S. BLS describes how brokers advise clients on property deals. See BLS broker occupation data.
Next step
This site is a validation / pilot concept. It is not generally available. Payment is not collected.
Ready for a bounded next step? Request Pilot Access or see how it works and compare commercial leases.
What is NPV in a commercial lease? · What discount rate should be used for commercial lease NPV? · When is NPV the wrong metric? · How is lease NPV calculated? · What costs belong in commercial lease NPV? · What is the difference between NPV and present value in a lease? · How should you explain lease NPV to a client? · Why do NPV and total lease cost differ?
Trusted sources
These are public references. They are not endorsements and not client results.