Ame Quarter student case

The leasing decision

You are the asset management analyst for the owner of a six-shop retail plaza. The florist, Midori, occupies 450 square feet and its lease expires on December 31, 2027. The owner can renew the florist or accept a higher-rent replacement offer. At January 1, 2028, recommend an offer using cash flows through December 31, 2032. Explain both the financial result and the additional evidence needed before signing a lease.

Submit a one-page decision memo and a calculation sheet showing your formulas. The calculator displays a demonstration result, so identifying its winner alone does not complete the assignment. Use the default offers first, then test one assumption that could reverse the decision.

The property, tenants, and financial inputs are hypothetical. The visual design is Japanese-inspired, but all monetary inputs are USD teaching assumptions. The case does not describe Japanese market rents or local leasing law. The 2-D plan and the data below are sufficient to complete the financial assignment without 3-D graphics.

Property and lease snapshot

One landlord owns all six premises and the common areas. The following contract rents are annual run rates as of January 1, 2027. They are current rates at that date, not original lease commencement rents. Upper structures are decorative and create no additional rentable area. Shared plaza, terrace, parking, and streets are excluded from the 3,600 rentable square feet. The snapshot provides context, not a five-year whole-property forecast.

The annual property operating budget is $12,000 of property taxes, $3,600 of insurance, $10,800 of common-area maintenance, and $2,400 of owner administration. Allocate each category by a tenant's share of total rentable area. NNN tenants reimburse taxes, insurance, and CAM. The cafe reimburses CAM only. The bookstore has no separate recovery. Owner administration is never recovered. Utilities are paid directly by tenants and are outside the budget. Expenses remain fixed in this exercise.

Offers for the florist premise

Use an 8% effective annual discount rate. Other tenants are held constant and excluded from the incremental leasing comparison. The replacement tenant's identity and credit quality are unspecified, leaving a diligence question rather than a credit assumption.

Cash flow conventions

1. The decision is at time zero, January 1, 2028. There are 60 calendar months, with operating cash flows paid at month-end. The monthly discount rate is the twelfth root of 1.08, minus one. Do not simply divide 8% by 12.
2. Downtime begins in January 2028. Replacement occupancy begins on May 1 after four vacant months. Both leases end in December 2032. The replacement therefore has 56 occupied months, rather than a new 60-month term after downtime.
3. Base rent equals area multiplied by annual rent per SF, divided by 12. It increases on each occupancy anniversary, including the elapsed free-rent months. Thus the replacement's first increase occurs in May 2029, not January 2029.
4. Free rent waives base rent only. The replacement pays no base rent in May or June 2028, but pays recoveries from occupancy. During vacancy there are neither rent receipts nor recoveries. The owner incurs all allocated operating expenses in every month.
5. Deduct operating expenses from base rent and recoveries to calculate NOI. Tenant improvements and commissions are separate leasing outlays below NOI. Both are paid at the start of occupancy: time zero for renewal and the end of month four for replacement, before the first occupied month's operating receipts.
6. Tenant improvements equal area times the stated allowance. Commission equals the stated percentage times scheduled base rent over the occupied months remaining through December 2032, before subtracting free-rent concessions. It excludes recoveries. A change in rent, growth, or downtime changes the commission base.
7. NPV equals the present value of the 60 monthly NOI amounts minus the separately discounted leasing outlays. There are no terminal proceeds, residual value, financing, income taxes, expense inflation, credit losses, or follow-on leases. This NPV ranks the supplied leasing cash flows and is not the value of the property.

Required work

1. Reconcile the snapshot. Calculate each tenant's annual base rent and recovery. Reconcile total landlord NOI. Show the florist's allocated annual operating expense and occupied recovery. Explain why NNN does not reimburse every owner cost in this case.
2. Trace timing. Show January 2028 and May 2028 under the replacement offer, separating base rent, recoveries, operating expenses, and NOI. Locate TI and commission on the timeline. Check the replacement's May 2029 rent escalation.
3. Compare offers. Build monthly cash flows for each alternative and report NPV, undiscounted cash flow, and initial or occupancy-date leasing costs. Explain why a higher starting rent need not win. Reconcile annual totals to the monthly schedule.
4. Find a decision boundary. Keep all other default inputs fixed and find the replacement starting rent that makes the offers approximately equal. Alternatively, test whole-month downtime values and identify whether any allowable value changes the recommendation. Report the search range and a pair of results that brackets a reversal, or explain why there is no reversal in that range. Use $1 as the NPV tolerance when solving for continuous rent.
5. Connect inspection with diligence. Identify a feature such as access, storefront visibility, shared seating, loading, or exhaust. Use the visual scene, leasing plan, or a premise description. State the question it raises and the evidence required before changing a rent, cost, or downtime assumption. Do not infer a rent premium from the illustration alone.
6. Recommend. Write a one-page memo that states the preferred offer under the stated inputs, summarizes the economic explanation, reports the sensitivity result, and identifies two unresolved risks with a specific next information request for each.

Calculation sheet and assessment

Use the supplied workbook or your own spreadsheet. The template supplies inputs and blank calculation cells. Enter formulas, retain full precision, and display final dollar results to cents. Clearly label any changed assumptions. Keep a copy of the default result and your sensitivity result so the two can be compared. State the threshold inputs in the memo.

Suggested grading is 20% rent-roll reconciliation, 35% cash-flow timing and NPV, 20% sensitivity analysis, and 25% recommendation and diligence. A well-supported conditional recommendation can receive credit even if the instructor supplies a scenario with a different winning offer. Unexplained calculator output is insufficient.

Learning objectives

After completing the case, students should be able to interpret gross, CAM-only, and NNN recovery terms; reconcile lease income to landlord NOI; distinguish operating expenses from leasing outlays; compare offers on a consistent horizon; locate a decision boundary; and defend a recommendation that acknowledges missing business evidence.

Suggested preparation is familiarity with present value, monthly cash-flow schedules, NOI, and basic spreadsheet formulas. A proposed schedule is 20–30 minutes of preparation, a 75-minute class, and a follow-up memo. Actual completion time will depend on student preparation. No survey or claim of measured learning improvement accompanies the case.

Created by Desen Lin for FIN 355 at California State University, Fullerton. Ame Quarter version 0.2.0, September 28, 2026. Limited noncommercial classroom permission for this handout and the student workbook is provided in teaching/README.md. Other project rights are unchanged.