Why a 9.2 cap single tenant office isn't really a 9.2 cap once re-tenanting is priced in

Dumb question since I'm still on my first rental. The one option at market, does the tenant get to set what market means, or is there an appraisal process written into the lease? And on NNN, who is actually on the hook if the HVAC units die in year three, because I've read NNN leases that still leave capital items with the owner.

Marlow, before the TI math the thing worth knowing is whether the space is actually used. Badged entries, parking counts on a Tuesday at 10am, whether the suite directory still lists departments that moved. A back office at $14.50 running at 30 percent of the desks it was built for is a tenant that renews at 12,000 sf or doesn't renew at all, and the contraction shows up in the middle of the hold, not at the end of it. Also worth asking for the tenant's own real estate footprint in the region. If they hold three buildings within 40 minutes and one is newer and half empty, this building is the consolidation candidate that goes away. Wren, on the market option, the good ones name an arbitration or three broker process with a floor at the last year's rent. The bad ones say fair market rental value and nothing else, which means a negotiation entered with no leverage.

The $107/sf is what stopped me. Replacement cost on a new two story office anywhere near me is multiples of that, which either means the market is telling you something real about future demand for this class of space, or it means the land under it is most of what you're buying. Do you know what the site is worth on its own if the building came down? That number would tell you what your actual downside is instead of guessing at it.

The escrow ask is worth making, and expect a no. Sellers of a 4.5 year term price the term. The safer read here is to only buy at a price where the yield on total cost, purchase plus the full turnover spend, still clears what could be found on something far less exciting. Run it at 60 dollars per square foot TI and nine months dark. If that number is boring but fine, there is a deal. If it only works when the tenant renews, that is a bet on one company's headcount plan dressed up as income.