Net Effective Rent (Lease Concessions)
The rate a tenant actually pays after the free rent is buried: landlords quote a high FACE rent and bury months of free rent and TI credits, so the term-sheet number is not the number to compare between offers. paid = face x (term - free); NER = (paid - one-time credit) / term; discount = (1 - NER/face). A $40/SF face over 120 months with 10 months free pays $4,400/SF -> $36.67/SF/yr, an 8.3% discount off face; a five-year lease with several months free can run 10-20% below face. Straight-line (undiscounted) average, the broker convention -- not a present-value effective rent. A comparison aid; the executed lease governs.
Formula and source
paid = face_rent x (term - free_periods); NER = (paid - one_time_credit) / term; total_saving = face x term - (paid - credit); discount_pct = (1 - NER / face) x 100.
Net effective rent (straight-line concession spread), per the Appraisal Institute income approach and standard commercial-lease concession practice, by name; the executed lease governs.
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