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Option To Renew Value Calculator
Renewal options have real option value.
Option PV
$249,145
Annual savings if exercised
$96,000
PV if exercised
$383,300
How the math works
Annual savings = (market − strike) × SF. PV if exercised = annual sum. Option PV = PV × probability.
$8 × 12k = $96k/yr × 5 yr at 8% = $383k. × 65% = $249k option PV.
How to Use
- Enter strike rent PSF.
- Enter expected market rent PSF.
- Enter option term years.
- Enter SF.
- Enter discount rate.
- Enter exercise probability %.
- Read option PV.
Frequently Asked Questions
Why it has value?
Tenant has right (not obligation) to renew at preset terms (often FMR or fixed). If market rent rises above strike, tenant exercises. If falls below, tenant walks away. Asymmetric payoff = real option value.
Valuing?
Expected value of exercise × probability − cost of option if not exercised. Longer term + more volatility = more value. Deep below-market strike = high value; at-market strike = low value. Options pricing theory applies.
Impact on rent?
Valuable options command rent premium. Landlord may demand higher current rent to grant option. Or tenant pays option premium ($1-5/SF one-time). Long-term options (multiple 5-year extensions) most valuable — reserve for anchor tenants.
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