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Back-of-the-napkin commercial real estate underwriting, in seconds.
5 Second Model · back-of-the-napkin underwriting
Net Effective Rent
A $15 deal isn't a $15 deal. Strip out the TI, the commission and the free months.
A $15 deal is not a $15 deal. Strip out the tenant improvement allowance, the leasing commission and the free months and what remains is net effective rent, which is the number that belongs in a cap rate rather than the face rent. This calculator shows the straight-line figure and the present value figure side by side, plus how many months of rent it takes to earn the concession package back.
Statement of assumptions & returnsAll figures USD · annual unless noted · click any number to type it exactly
Net effective rent
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Face rent vs what you keep, per SF per year
The arithmetic
| Total base rent over the term | -- |
| Less free rent | -- |
| Less tenant improvements | -- |
| Less leasing commission | -- |
| Less other concessions | -- |
| Net effective total | -- |
Per square foot, per year
| Face rent, year one | -- |
| Average face rent over term | -- |
| Net effective, straight line | -- |
| Net effective, present value | -- |
| Upfront cost to you | -- |
| Months of rent to earn it back | -- |
What the concession package costs, per SF
Why this matters: two offers at the same face rent are rarely the same deal. A tenant asking $15 with $40 of TI is offering you less than one asking $13 with nothing. This is the number to feed into a cap rate — not the face rent.
Common questions
- Why compare offers on net effective rent?
- Because two offers at the same face rent are rarely the same deal. A tenant asking $15 with $40 of TI is offering you less than one asking $13 with nothing, and only net effective rent makes that visible on one line.
- Straight-line or present value?
- Present value is the more honest of the two, because you pay the allowance now and collect the rent over years. On long terms with big allowances the gap between the two gets wide.
- Does free rent or TI hurt more?
- TI usually, because it is cash out the door before the tenant opens. Free rent at least defers the pain into a period where the space is already yours to carry.