Reference no: EM131737062

Question: (Modeling Optimal Landlord Search) Use the procedure described in Appendix 30C of this chapter contained on the CD to answer this question. You are a leasing agent working for a landlord who has some vacant space to fill. You believe you can find potential tenants at an average rate of two per month. Typical leases in this market are for five years, with net effective rent around $15/SF per year (annual payments in advance, with 8% tenant borrowing rate and 12% landlord required return between leases). Based on your knowledge of the rental market, you feel that the typical potential tenant you would find for this space would have a normal probability distribution of acceptable rent ranging around the $15/SF figure with a standard deviation of $3/SF. What is the optimal asking rent so as to maximize the landlord's present value of her building, and what can you tell her about how long to expect until you get a tenant?