Assignment Scenario: A multi-national corporation is the sole tenant of a landmark CBD office building. The lessor, a major superannuation fund, has adopted a policy of rationalization which envisages the disposal of the property at an appropriate juncture. The lease has seven years to run and generates a net annual income of $4.5 million which is 20% below market.
Supporting market data:
Your analysis of comparable transactions has generated an appropriate freehold capitalization rate of 7%, a sinking fund rate of 4% and a 2% leasehold differential. N.B. Make sure you list all assumptions very clearly.
Question 1: By reference to the appropriate calculations, provide comprehensive advice to the tenant who has been approached by the lessor with a view to surrender and renewal of the lease at market rent. Ensure you make explicit the position of each party.
Question 2: With reference to the appropriate additional calculations, provide supplementary advice to the tenant in the event of their wishing to purchase the freehold interest.