Chapter 16

Question 1

Net Operating Income

Answer 1

Equal to the Gross income minus expenses (and sometimes debt service). Also referred to as cash flow.

Question 2

Leverage

Answer 2

he use or borrowed capital (mortgage) to increase the potential return of an investment.

Question 3

Gross Income

Answer 3

The total amount collected from rents and other income producing opportunities (washing machines, storage, etc.).

Question 4

Capitalization Rate

Answer 4

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

Question 5

Rentable Square Footage

Answer 5

Usable area that can be leased/rented to a tenant.

Question 6

Common Areas

Answer 6

Spaces in a commercial building shared by the tenants or residents of the building. Common areas include lobbies, corridors, stairs, elevators, etc.

Question 7

Net Lease

Answer 7

A lease that requires the tenant to pay, in addition to rent, some or all of the property expenses that normally would be paid by the property owner. These include expenses such as real estate taxes, insurance, maintenance, repairs, utilities, and other items.

Question 8

Gross Lease

Answer 8

A lease of property whereby the lessor is to meet all property charges regularly incurred through ownership.

Question 9

Percentage Lease

Answer 9

A lease of property in which the rental is based upon the percentage of the volume of sales made upon the leased premises, usually provides for minimal rental.

Question 10

Estoppel

Answer 10

An instrument executed by the mortgagor setting forth the present status and the balance due on the mortgage as of the date of the execution of the certificate.

Question 11

Anchor Stores

Answer 11

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.).

Question 12

Debt Service

Answer 12

Annual amount to be paid by a debtor on an obligation to repay borrowed money.

Question 13

Before Tax Cash Flow

Answer 13

The net profit/loss calculated by subtracting expenses from income before taxes are paid.

Question 14

After Tax Cash Flow

Answer 14

The net profit/loss realized after taxes are deducted.

Question 15

Cash on Cash Return

Answer 15

A percentage return on money invested in a property by an investor. Formula: Cash Flow / Down Payment

Question 16

Lease Escalation Clause

Answer 16

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.

Question 17

Pro-forma Statement

Answer 17

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.

Question 18

Tax Shelter

Answer 18

Any method of reducing taxable income resulting in a reduction of the payments to tax collecting entities, including state and federal governments.

Question 19

Time Value of Money (TVM)

Answer 19

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.

Question 20

Rate of Return

Answer 20

A profit on an investment over a period of time, expressed as a proportion of the original investment.

Question 21

Usable Square Footage

Answer 21

Space that can be used or occupied by a tenant. Typically does not include elevators, stairs, mechanical spaces, etc.