Chapter 16. Flashcards
Anchor Stores
A key tenant in retail. Typically one of the larger stores in a shopping mall, usually a department store or a major retail chain (Macys, Nordstrom, etc.).
Debt Service
Annual amount to be paid by a debtor on an obligation to repay borrowed money.
Capitalization Rate
The percentage which is the sum of the discount rate, the effective tax rate and the recapture rate representing the relationship between net operating income and present value. Formula: Value = Income / Rate
Before Tax Cash Flow
The net profit/loss calculated by subtracting expenses from income before taxes are paid.
After Tax Cash Flow
The net profit/loss realized after taxes are deducted.
Cash on Cash Return
A percentage return on money invested in a property by an investor. Formula: Cash Flow / Down Payment
Common Areas
Spaces in a commercial building shared by the tenants or residents of the building. Common areas include lobbies, corridors, stairs, elevators, etc.
Lease Escalation Clause
A contract provision allowing for one to pass an increase in costs to another party. Escalation clauses are usually related to influences beyond both parties control, such as inflation.
Leverage
The use or borrowed capital (mortgage) to increase the potential return of an investment.
Net Operating Income
Equal to the Gross income minus expenses (and sometimes debt service). Also referred to as cash flow.
Gross Income
The total amount collected from rents and other income producing opportunities (washing machines, storage, etc.)
Pro-forma Statement
An accounting statement that forecasts income and expenses for a period of time, typically five or more years. Pro-forma statements are typically used by investors to estimate their rate of return for a particular property.
Tax Shelter
Any method of reducing taxable income resulting in a reduction of the payments to tax collecting entities, including state and federal governments.
Time Value of Money (TVM)
The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.
Rate of Return
A profit on an investment over a period of time, expressed as a proportion of the original investment.
Usable Square Footage
Space that can be used or occupied by a tenant. Typically does not include elevators, stairs, mechanical spaces, etc.
Rentable Square Footage
Usable area that can be leased/rented to a tenant.
The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity is known as…?
Time Value of Money
Andrew bought a building at a 6% cap rate. The interest rate on his mortgage is only 5.2%. What will Andrew experience in the deal…?
Positive Leverage
Amy purchased a property at a 4% cap rate. The interest rate on her mortgage is 5.5%. What will Amy experience in the deal…?
Negative Leverage
- James purchased a commercial property at a 7.5% cap rate. The previous owner agreed to finance the deal at 8%. Why may James elect not to go ahead with the financing…?
He will experience negative leverage
profit on an investment over a period of time, expressed as a proportion of the original investment is also known as…?
Rate of Return
- How is a multi-family property valued different than an office building…?
Both property types are valued the same way
- Which of the following is considered a primary commercial property type…?
Industrial properties