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Fina 210 > book chapter 2: environment analysis > Flashcards

book chapter 2: environment analysis Flashcards

1
Q

when do landlords (suppliers) raise prices)

A

when tenants require more space that is currently available

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2
Q

when do prices stabilize?

A

when supply meets demand

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3
Q

what are leases?

A

contracts that let tenants use space

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4
Q

what can be the duration of a lease?

A

can rance from one day to many years

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5
Q

what does demand for space in commercial properties depend on?

A

the overall level of economic activity

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6
Q

occupancy rate

A

the percentage of built space in use

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7
Q

vacancy rate

A

the percentage of built space that is currently vacant

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8
Q

what happens when occupancy rate increases?

A

rent rises

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9
Q

what can economic down cycles do in Real Estate?

A

decrease demand, decrease occupancy, and decrease rent prices

decrease cash flow

decrease the property’s market value

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10
Q

absorption rate

A

the rate at which uses take occupancy

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11
Q

how is the absorption rate measured?

A

measured as units of space per periods of time

in square feet per year

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12
Q

how does global economic activity affect national economic activity?

A

through trade

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13
Q

how does increased economic activity affect demand?

A

it increases demand as well

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14
Q

how can economic activity in other countries affect supply?

A

pricing of material and labor

cost of construction

many commodities required for real estate are sourced globally, so thats affected

wage rates go up as demand for labor increases

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15
Q

where do real properties typically find their primary market?

A

among users located in a particular geographic region

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16
Q

how does consumer confidence affect demand for retail property?

A

consumer confidence affects retail spending

this in turn determines demand for retail space

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17
Q

what do people often times own that can impact consumer confidence?

A

housing prices

the value of their assets

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18
Q

what directly affects consumer spending?

A

unemployment levels

the length of unemployment

availability and access to credit

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19
Q

what has a significant impact on the amount of space dedicated to each worker?

A

worker productivity

number of labor hours to complete a task

telecommunicating

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20
Q

what can affect demand for retail property?

A

consumer confidence

employment levels

credit accessibility

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21
Q

what determines the pace at which adolescents leave their parents’ homes for multifamily housing (apartments)?

why?

A

job availability

if there is high unemployment rate, rent cannot be affordable

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22
Q

what determines leaving apartments to buy a house or simply just buying a house?

A

interest rates

mortgage availability

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23
Q

what are renters by choice?

A

group of long-term multifamily users

appeared after the 2008 financial crisis

have income to afford a house but do not see the benefit in that after witnessing the crash

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24
Q

what are key indicators of warehouse space?

A

overall levels of inventories

shipment of goods

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25
Q

what do sophisticated logistic processes do as an advantage?

A

increased productivity in the supply chain

inventory efficiency

decreased warehouse space

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26
Q

what dominates the US travel business? By how much?

A

leisure travel

in 2010, 77% of US trips

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27
Q

what proportion of travels did business travels take? Compare it to leisure travels

A

23%

leisure travels three times as much

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28
Q

compare leisure travel and business travel spending

A

leisure travel spends twice as much as business travels

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29
Q

what are key indicators for business room demand? why?

A

GDP growth

corporate profitability

internet

gasoline prices

in a bad economy, less meetings = less costs

internet also influences demand for rooms

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30
Q

what is the most typical measure used to estimates a country’s level of economic output?

A

GDP

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31
Q

using the GDP, what indicated good a wank economic growth?

A

rates above 3% = strong economic growth

rates below 3% = tank economic growth

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32
Q

frictional employment

A

people out of work because they switch jobs

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33
Q

when is the US economy considered to be at full employment?

A

unemployment rate below 5%

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34
Q

when is the US economy considered to not be producing enough jobs?

A

unemployment rate above 5%

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35
Q

what does the inflation rate measure?

A

the rise in prices over time

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36
Q

what can cause prices to go up?

what can it then lead to?

A

excess demand leads to price increase

this can then lead to inflation

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37
Q

what causes rising demand?

A

rising income

expenditure of savings

easy credit

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38
Q

what causes limited supply

A

shortage of commodities

shortage of manufactured goods

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39
Q

what does the government do to combat inflation ?

A

increase interest rates to make credit more expensive

limit demand

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40
Q

what does the government do with interest rates when economy is trash?

A

lowers the interest rates

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41
Q

why does the government reduce interest rates when the economy on slack mode?

A

to reduce cost of borrowing

to encourage companies and individuals to spend

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42
Q

why is a country’s breadth of economic activity crucial?

A

because it can define a country’s economic success

it is like diversification

relying on only one industry can be deadly if shit hits the fan

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43
Q

what crucial info does the CIA World Factbook publish?

A

list of each country’s primary industries and agricultural products

their macroeconomic metrics on industrial production

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44
Q

what can you gain from researching a country’s stock exchange?

A

the concentration of its activity

the main companies dominating in the country

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45
Q

how d you identify a country’s trading partners?

A

by reviewing a country’s import and export activity

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46
Q

what does a country’s comparative advantage come from?

A

from its ability to produce goods at a lower cost or higher quality

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47
Q

how does a fast growing population increase real estate demand?

A

they require additional space for housing, logistics, retail, etc.

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48
Q

what influences a population’s growth or decline?

A

birth rates and death rates

migration and emigration

age trends

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49
Q

how can the availability of skilled workers create a competitive advantage?

A

the concentration of labor with a particular expertise can lead to rapid growth to its corresponding industry and supply chain

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50
Q

what happens when employment opportunities grow faster than the workforce?

A

economy moves toward full employment

wage levels rise

51
Q

why are full employment and expectations of full employee gyu for real estate investors?

A

because full employment requires creation of infrastructure and all matter of real property

52
Q

why is a highly skilled workforce an advantage?

A

spurs entrepreneurial activity that spurs growth

53
Q

why are regions surrounding universities hotbed for economic activity?

A

students launching new companies

presence of services conceived in academic settings

54
Q

how can gyu childcare and elementary school facilitate economic boom?

A

parents can work without interruption

55
Q

what can influence the size and growth of a workforce?

A

available workers

employment levels

skills of workforce

impact of healthcare

56
Q

how can a gyu healthcare influence the workforce?

A

it will make it more productive

less time being ded

57
Q

total GDP

A

absolute amount of products sold to final consumers

time series implying economic growth or decline

58
Q

per capita GDP

A

a nation’s economic output per person

country’s level of economic development

country’s capacity of economic spending

59
Q

productivity

A

measurement of economic output per unit of ressource consumed

60
Q

labor productivity

A

the economic output per hour of labor

61
Q

what can affect labor productivity?

A

training and education of labor pool

quality of infrastructure that supports production

62
Q

what is the national economic analysis vs regional economic analysis?

A

national is the country’s analysis

regional is a particular geographic location’s analysis

63
Q

what do regions surround?

A

core lactation such as a city or a cluster of cities

geographic features such as a rivers, lakes, mountains, valleys

64
Q

how do the presence of major industries and institutions define a region?

A

presence of abundant human and natural ressources

this in turn greatly influences real estate demand

65
Q

why is regional mobility gyu for real estate investors?

A

because of the ability to easily move goods and people into and out of a geographic region

if you have to see if shit can easily be transported in terms of time and cost

66
Q

what links local markets and regional markets?

A

local markets are located inside regional markets

the success of a local market will depend on the same factors affecting the corresponding regional market

67
Q

which residential locations have a competitive advantage?

A

those that are attractive and accessible to major employees

68
Q

what does the location of key employee within a region determine?

A

centers of economic activity

commuting distances and times

69
Q

which type of real estate market corresponds to a growing population?

A

a dynamic real estate market

70
Q

what does a declining and aging population imply?

A

decreasing economic activity

71
Q

what can we determine by analyzing the income of a local population?

A

retail spending

products purchase

the types of stores that will thrive

72
Q

do income levels and population growth always correlate?

A

nah boy

73
Q

which are important points to look at when doing a national political analysis?

A

form and stability of a government

property rights

taxation

mature financial market

risk management

74
Q

what does the government’s position on private property rights depend on?

A

the nation’s political ideology

75
Q

what does the stability of a government mean?

A

the duration of the current ideological system

76
Q

is it gyu to invest in a country where government is initiating private property rights for the first time?

A

it is risky until government demonstrates stability

if shit works out, it makes gyu money

77
Q

is it gyu to invest in a country with long lasting traditions of respect for private property?

A

safer investment

les chances of making big big cash

78
Q

what are the most important rights of property?

A

right to purchase and hold property

79
Q

can property rights be subject to government limitations?

A

ye boy

80
Q

what is the evidence that you are a title holder (own real property)

A

the deed

81
Q

what does transferability of property mean?

when does it usually happen?

A

it means property ownership can be transferred without necessary government approval

usually happens in more liberal regimes

82
Q

when is property transfer subject to government approval?

A

in more restrictive regimes

83
Q

right of eminent domain

A

government has the right to seize property for public good or necessity

will pay you market value of property

84
Q

transfer tax

A

tax implemented when she of property resulted in profit

85
Q

what do sophisticated real estate investors rely on? why?

A

debt financing

because capital dominates real estate industry

86
Q

what are critical features of mortgage lending that define a mature market?

A

legal system that recognizes and protects private property ownership rights

presence of risk management infrastructure

87
Q

what do mortgage lenders rely on?

A

local banking systems to source capital for property loans

global capital markets

88
Q

give examples of property and casualty insurance

A

those that cover fires and floods damaging the property

89
Q

liability insurance

A

protects owner against accidents and injuries occurring to tenants, visitors, and workers of property

90
Q

title insurance

A

provides protection to owner from other parties who made ownership claims against insured property

ex:

91
Q

what is the ultimate benefit of having gyu risk management structure put in place

A

presents less risk for investors

92
Q

what are the main points to analyze when conducting a regional and local analysis?

A

structure of local government

legal structure of the tenant-landlord relationship

land use regulation

presence of infrastructure

construction market

93
Q

what do property development decisions depend on?

A

on the way country’s distribute rights to control land use between local and federal government

94
Q

in the US, who administers real estate laws and landlord-tenant relationships?

A

local governments

95
Q

what must be accounted for in the permitting process when considering a location for real estate?

A

the government land use philosophy

the nature of restrictions in place

the permits required to develop or renovate real estate

96
Q

what message can the loss of green space convey in real estate?

A

may be seen as diminishing life quality

97
Q

what does unchecked growth into previously open spaces require?

A

creation of infrastructure

provision of utilities

98
Q

how can an increase in population diminish green space? What does it require?

A

infrastructures have to be built

they require municipal services and capital investments by the government

99
Q

why is the presence of infrastructure crucial in Real Estate creation?

A

roads, water system, power cables and shit

100
Q

why is the construction market crucial in real estate creation?

A

without it, everything would be more expensive

you get skilled workers and contractors

you get access to needed materials

101
Q

what is the first step in determining the demand for any property?

A

gotta determine market in which property competes

gotta assess the project’s scale and importance

102
Q

what must be done after determining the market?

A

gotta check market demand and supply

gotta assess rent levels already present

gotta check history of properties already present

assess historic absorption rates

103
Q

historic absorption rates

A

the speed at which a market is absorbing newly created space

104
Q

what is the first step in determining future supply?

A

identifying competitive projects in planning and construction

105
Q

how can you identify competing projects?

A

research those announced in press

local government economic development and regional planning offices show the permits issued

bankers and lawyers show the projects underway if you ask them

106
Q

when is property obsolescence presented as an opportunity?

A

when an area experiencing growth has outdated property

107
Q

what is necessary to evaluate demand in a market?

A

expected economic growth

potential obsolescence of existing property stock

108
Q

is a market with over supply a gyu place to invest in?

A

no

only exception is when you apply a niche strategy

109
Q

why is timing crucial in a growth market?

A

you won’t be the only thinking of investing or creating real estate

when everyone does the same, prices go up

when prices go up, so does excessive development

if you don’t time it right, you’ll be doing it at the same time of oversupply

110
Q

why is a steady market gyu to invest in?

A

returns can be maintained

threat of new entrance minimized

111
Q

how can you be sure of already existing demand?

A

discussion with brokers who have info on tenants and shit

112
Q

why is a review of historic performance crucial?

A

to see if property has been accepted in the marketplace

to see if improvements have to be made to achieve acceptance

113
Q

why is a property with long-term leases to high-quality tenants highly valued?

A

because there is certainty of cash flow

114
Q

why is a property with short-term tenants in a high-occupancy rising rent market valuable?

A

because of its growth potential

115
Q

which is riskier: buying property needing repairs or one in excellent condition? why?

A

buying property needing repairs is riskier

construction work always involves uncertainty

116
Q

what is a pro forma?

A

used to estimate future financial performance of a property

can help determine wether an investment in a property can achieve desired returns

117
Q

when do you develop a pro forma?

A

once property operating costs are estimated

118
Q

why is it necessary to review the title before acquiring the property?

A

the title reflects ownership of asset

the title reflects constraints on that ownership imposed by the government or through prior commercial agreements

the review gives info mortgage lenders want to to know

119
Q

outstanding liens

A

liens or claims against property

120
Q

why is a title attorney hired to find outstanding liens?

A

so that the seller can clear the outstanding liens or adjust prices accordingly

121
Q

what happens after the title attorney finishes his search for outstanding liens?

A

an insurance policy is purchased by buyer that protects him against existence of any other claims at that time

122
Q

what is the revenue stream of a property determined by?

A

by the leases in place

123
Q

why are limitations on leases in need to be analyzed? what is used to analyze them?

A

cause they can reduce the value of the asset or property

analyzed with the abstract of each lease

Fina 210 (28 decks)

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