Expert: Peter Liebert, SIOR - 2/7/2007

Question
We are about lease out a new flex/office-warehouse site in TX. I am looking at setting the rent escalators. We are in an area that is in very high demand which is projected to last for several more years. I was recommended to use the CPI as a multiplier with a FMV evaluation after a couple of years. This multiplier does not reflect the yearly rent increases and I feel the rent will lag too much in a few years. Is there any other type of escalator that is commonly used? I am thinking of using a submarket indicator that is very local such as the numbers published by the big commercial brokerage research depts such as Colliers, NAI, CBRE. How common is this and what is my alternative to the CPI?  

Answer
Vicky, please check with an SIOR at one of Colliers' offices in TX, escalator types vary from one geographic area to another, usually due to lender preference. Industrial REIT's also vary in their preferences nationally. Colliers.com or SIOR.com should both have a directory for your area.