Industrial BTS - Rate is a yield on cost but commissions are calculated from the rate. However the “cost” includes lease commissions.
Hey guys- I know the answer to this but wanted to get thoughts because I hate that there is a circular reference in this deal. 

We are doing a 1M sf BTS and the rate is directly tied to the total cost on the deal (including our land basis, soft costs, hard costs, lease commissions, everything). 
For example, if our total project cost is $90/PSF then a 6% YOC is $5.40/SF which is the base rent for year 1. 
What I couldn’t figure out for the longest time is how do we know our total project cost ($90MM) if the leasing commissions are calculated from the rate, which is calculated from total cost.. it was throwing me for a loop, but I guess commissions are estimated then once we have a final project cost then commissions are accurately calculated. 

Anyways just thought it was interesting when working through this deal. Would love to hear y’all’s thoughts.
[{"id": "frlwgvc", "text": "Iterative calculation in Excel.", "replies": [{"id": "frm2pk3", "text": "This", "replies": [], "depth": 2}], "depth": 1}, {"id": "frm8dh8", "text": "I believe You can use algebra do do this as well", "replies": [], "depth": 1}, {"id": "frmizbl", "text": "Hope this helps. Here is an example.\n\n\nRent = R = TC \u00d7 6% = .06TC\nLeasing comission 4% of rent = R \u00d7 4% = .04R\n\nTotal Cost = TC = Hard Costs + Soft Costs + Leasing Comission. Assume hard cost and soft cost = $90 psf\n\n$90psf + .04R = TC\n$90 psf + .04\u00d7(.06TC) = TC\n$90 psf + .0024TC = TC\n$90psf = TC - .0024TC \n$90 psf = (1-.0024)TC\n$90 psf = .9976TC\n$90 psf \u00f7 .9976 = TC\n$90.21651965 psf = TC\n\nRent can be calculated off the total cost but it should work out. I've heard plugged in 4% as the commission rate, but you will need to use your own rate to make the formula with for you. Hopefully it was clear enough to follow", "replies": [], "depth": 1}]