book chapter 2: environment analysis Flashcards
when do landlords (suppliers) raise prices)
when tenants require more space that is currently available
when do prices stabilize?
when supply meets demand
what are leases?
contracts that let tenants use space
what can be the duration of a lease?
can rance from one day to many years
what does demand for space in commercial properties depend on?
the overall level of economic activity
occupancy rate
the percentage of built space in use
vacancy rate
the percentage of built space that is currently vacant
what happens when occupancy rate increases?
rent rises
what can economic down cycles do in Real Estate?
decrease demand, decrease occupancy, and decrease rent prices
decrease cash flow
decrease the property’s market value
absorption rate
the rate at which uses take occupancy
how is the absorption rate measured?
measured as units of space per periods of time
in square feet per year
how does global economic activity affect national economic activity?
through trade
how does increased economic activity affect demand?
it increases demand as well
how can economic activity in other countries affect supply?
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
where do real properties typically find their primary market?
among users located in a particular geographic region
how does consumer confidence affect demand for retail property?
consumer confidence affects retail spending
this in turn determines demand for retail space
what do people often times own that can impact consumer confidence?
housing prices
the value of their assets
what directly affects consumer spending?
unemployment levels
the length of unemployment
availability and access to credit
what has a significant impact on the amount of space dedicated to each worker?
worker productivity
number of labor hours to complete a task
telecommunicating
what can affect demand for retail property?
consumer confidence
employment levels
credit accessibility
what determines the pace at which adolescents leave their parents’ homes for multifamily housing (apartments)?
why?
job availability
if there is high unemployment rate, rent cannot be affordable
what determines leaving apartments to buy a house or simply just buying a house?
interest rates
mortgage availability
what are renters by choice?
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
what are key indicators of warehouse space?
overall levels of inventories
shipment of goods
what do sophisticated logistic processes do as an advantage?
increased productivity in the supply chain
inventory efficiency
decreased warehouse space
what dominates the US travel business? By how much?
leisure travel
in 2010, 77% of US trips
what proportion of travels did business travels take? Compare it to leisure travels
23%
leisure travels three times as much
compare leisure travel and business travel spending
leisure travel spends twice as much as business travels
what are key indicators for business room demand? why?
GDP growth
corporate profitability
internet
gasoline prices
in a bad economy, less meetings = less costs
internet also influences demand for rooms
what is the most typical measure used to estimates a country’s level of economic output?
GDP
using the GDP, what indicated good a wank economic growth?
rates above 3% = strong economic growth
rates below 3% = tank economic growth
frictional employment
people out of work because they switch jobs
when is the US economy considered to be at full employment?
unemployment rate below 5%
when is the US economy considered to not be producing enough jobs?
unemployment rate above 5%
what does the inflation rate measure?
the rise in prices over time
what can cause prices to go up?
what can it then lead to?
excess demand leads to price increase
this can then lead to inflation
what causes rising demand?
rising income
expenditure of savings
easy credit
what causes limited supply
shortage of commodities
shortage of manufactured goods
what does the government do to combat inflation ?
increase interest rates to make credit more expensive
limit demand
what does the government do with interest rates when economy is trash?
lowers the interest rates
why does the government reduce interest rates when the economy on slack mode?
to reduce cost of borrowing
to encourage companies and individuals to spend
why is a country’s breadth of economic activity crucial?
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
what crucial info does the CIA World Factbook publish?
list of each country’s primary industries and agricultural products
their macroeconomic metrics on industrial production
what can you gain from researching a country’s stock exchange?
the concentration of its activity
the main companies dominating in the country
how d you identify a country’s trading partners?
by reviewing a country’s import and export activity
what does a country’s comparative advantage come from?
from its ability to produce goods at a lower cost or higher quality
how does a fast growing population increase real estate demand?
they require additional space for housing, logistics, retail, etc.
what influences a population’s growth or decline?
birth rates and death rates
migration and emigration
age trends
how can the availability of skilled workers create a competitive advantage?
the concentration of labor with a particular expertise can lead to rapid growth to its corresponding industry and supply chain
what happens when employment opportunities grow faster than the workforce?
economy moves toward full employment
wage levels rise
why are full employment and expectations of full employee gyu for real estate investors?
because full employment requires creation of infrastructure and all matter of real property
why is a highly skilled workforce an advantage?
spurs entrepreneurial activity that spurs growth
why are regions surrounding universities hotbed for economic activity?
students launching new companies
presence of services conceived in academic settings
how can gyu childcare and elementary school facilitate economic boom?
parents can work without interruption
what can influence the size and growth of a workforce?
available workers
employment levels
skills of workforce
impact of healthcare
how can a gyu healthcare influence the workforce?
it will make it more productive
less time being ded
total GDP
absolute amount of products sold to final consumers
time series implying economic growth or decline
per capita GDP
a nation’s economic output per person
country’s level of economic development
country’s capacity of economic spending
productivity
measurement of economic output per unit of ressource consumed
labor productivity
the economic output per hour of labor
what can affect labor productivity?
training and education of labor pool
quality of infrastructure that supports production
what is the national economic analysis vs regional economic analysis?
national is the country’s analysis
regional is a particular geographic location’s analysis
what do regions surround?
core lactation such as a city or a cluster of cities
geographic features such as a rivers, lakes, mountains, valleys
how do the presence of major industries and institutions define a region?
presence of abundant human and natural ressources
this in turn greatly influences real estate demand
why is regional mobility gyu for real estate investors?
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
what links local markets and regional markets?
local markets are located inside regional markets
the success of a local market will depend on the same factors affecting the corresponding regional market
which residential locations have a competitive advantage?
those that are attractive and accessible to major employees
what does the location of key employee within a region determine?
centers of economic activity
commuting distances and times
which type of real estate market corresponds to a growing population?
a dynamic real estate market
what does a declining and aging population imply?
decreasing economic activity
what can we determine by analyzing the income of a local population?
retail spending
products purchase
the types of stores that will thrive
do income levels and population growth always correlate?
nah boy
which are important points to look at when doing a national political analysis?
form and stability of a government
property rights
taxation
mature financial market
risk management
what does the government’s position on private property rights depend on?
the nation’s political ideology
what does the stability of a government mean?
the duration of the current ideological system
is it gyu to invest in a country where government is initiating private property rights for the first time?
it is risky until government demonstrates stability
if shit works out, it makes gyu money
is it gyu to invest in a country with long lasting traditions of respect for private property?
safer investment
les chances of making big big cash
what are the most important rights of property?
right to purchase and hold property
can property rights be subject to government limitations?
ye boy
what is the evidence that you are a title holder (own real property)
the deed
what does transferability of property mean?
when does it usually happen?
it means property ownership can be transferred without necessary government approval
usually happens in more liberal regimes
when is property transfer subject to government approval?
in more restrictive regimes
right of eminent domain
government has the right to seize property for public good or necessity
will pay you market value of property
transfer tax
tax implemented when she of property resulted in profit
what do sophisticated real estate investors rely on? why?
debt financing
because capital dominates real estate industry
what are critical features of mortgage lending that define a mature market?
legal system that recognizes and protects private property ownership rights
presence of risk management infrastructure
what do mortgage lenders rely on?
local banking systems to source capital for property loans
global capital markets
give examples of property and casualty insurance
those that cover fires and floods damaging the property
liability insurance
protects owner against accidents and injuries occurring to tenants, visitors, and workers of property
title insurance
provides protection to owner from other parties who made ownership claims against insured property
ex:
what is the ultimate benefit of having gyu risk management structure put in place
presents less risk for investors
what are the main points to analyze when conducting a regional and local analysis?
structure of local government
legal structure of the tenant-landlord relationship
land use regulation
presence of infrastructure
construction market
what do property development decisions depend on?
on the way country’s distribute rights to control land use between local and federal government
in the US, who administers real estate laws and landlord-tenant relationships?
local governments
what must be accounted for in the permitting process when considering a location for real estate?
the government land use philosophy
the nature of restrictions in place
the permits required to develop or renovate real estate
what message can the loss of green space convey in real estate?
may be seen as diminishing life quality
what does unchecked growth into previously open spaces require?
creation of infrastructure
provision of utilities
how can an increase in population diminish green space? What does it require?
infrastructures have to be built
they require municipal services and capital investments by the government
why is the presence of infrastructure crucial in Real Estate creation?
roads, water system, power cables and shit
why is the construction market crucial in real estate creation?
without it, everything would be more expensive
you get skilled workers and contractors
you get access to needed materials
what is the first step in determining the demand for any property?
gotta determine market in which property competes
gotta assess the project’s scale and importance
what must be done after determining the market?
gotta check market demand and supply
gotta assess rent levels already present
gotta check history of properties already present
assess historic absorption rates
historic absorption rates
the speed at which a market is absorbing newly created space
what is the first step in determining future supply?
identifying competitive projects in planning and construction
how can you identify competing projects?
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
when is property obsolescence presented as an opportunity?
when an area experiencing growth has outdated property
what is necessary to evaluate demand in a market?
expected economic growth
potential obsolescence of existing property stock
is a market with over supply a gyu place to invest in?
no
only exception is when you apply a niche strategy
why is timing crucial in a growth market?
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
why is a steady market gyu to invest in?
returns can be maintained
threat of new entrance minimized
how can you be sure of already existing demand?
discussion with brokers who have info on tenants and shit
why is a review of historic performance crucial?
to see if property has been accepted in the marketplace
to see if improvements have to be made to achieve acceptance
why is a property with long-term leases to high-quality tenants highly valued?
because there is certainty of cash flow
why is a property with short-term tenants in a high-occupancy rising rent market valuable?
because of its growth potential
which is riskier: buying property needing repairs or one in excellent condition? why?
buying property needing repairs is riskier
construction work always involves uncertainty
what is a pro forma?
used to estimate future financial performance of a property
can help determine wether an investment in a property can achieve desired returns
when do you develop a pro forma?
once property operating costs are estimated
why is it necessary to review the title before acquiring the property?
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
outstanding liens
liens or claims against property
why is a title attorney hired to find outstanding liens?
so that the seller can clear the outstanding liens or adjust prices accordingly
what happens after the title attorney finishes his search for outstanding liens?
an insurance policy is purchased by buyer that protects him against existence of any other claims at that time
what is the revenue stream of a property determined by?
by the leases in place
why are limitations on leases in need to be analyzed? what is used to analyze them?
cause they can reduce the value of the asset or property
analyzed with the abstract of each lease
