Simulation: a fictional property for practice.

A half-empty office building: what does it cost to fill?

A 10,000 sq ft office building is half leased. The price assumes it’s full. Count the cost of getting there.

A fictional small office building. Lease terms and costs vary by market; these are example figures.

• Building: 10,000 sq ft; 5,000 sq ft empty
• Market rent (example): $24 per sq ft a year
• Price: Based on the building fully leased
• Time to lease the empty space (example): 9 to 12 months

Mission 1: The cost to lease it up

Enter what you think it will cost to lease the 5,000 empty square feet, before looking at the example ranges.

• Tenant improvements: building out the space for a new tenant
• Leasing commissions to brokers
• Costs you pay on the empty space while it’s vacant

Lease-up can cost $210,000 to $345,000 here. A price based on a full building should come down by at least that much, plus a margin for the risk it takes longer.

Mission 2: The tenants who are there

What do you check about the existing tenants?

• When each lease ends, and any options to leave early or renew at a fixed rent
• Estoppel certificates confirming their rent and any claims
• Nothing: occupied space is safe income

Start from what the building would be worth fully leased, then subtract the lease-up costs, the rent you go without and a cushion for the time and risk. Also work out what today’s income supports, so you see how much of the price depends on leasing that hasn’t happened yet.

At a price based on a full building, what do you do?

Buy, investigate or pass? Work through the drill to see what an experienced investor would weigh.