Commercial Real Estate

Question 1

Cap Rate

Answer 1

Proxy for unlevered cash-on-cash return. $100,000 normalized NOI on $1,000,000 building yields 10% = 10 cap. If you cap $100,000 @ 10% you get $1,000,000 value.

Question 2

Steps for Unlevered Real Estate Model

Answer 2

1. Model the cash flows
2. Make assumptions about what you think the building will be worth
3. Discount the cash flows plus the sale of the building to get purchase price

Question 3

Color Coding for Modeling

Answer 3

Question 4

Triple Net

Answer 4

Tenant must pay for all expenses
Proportion corresponds to tenant’s occupied square footage
Lowest rent

Question 5

Full Service

Answer 5

Tenant does not pay for any expenses
Highest rent

Question 6

Modified Gross

Answer 6

Tenant pays for some expenses
Proportion corresponds to tenant’s occupied square footage
Rent amount between NNN and FS

Question 7

Percentage Rent

Answer 7

Retail sales only. Tenant pays a percentage of sales to owner.

Question 8

Net Effective Rent

Answer 8

Effective Rent Per Unit X Units X 12
Effective rent = GPR - loss to lease - concessions

Question 9

Total Rental Income (net effective rent method)

Answer 9

NER - Vacancy - Non-revenue units - Bad Debt

Question 10

RUBS

Answer 10

Ratio Utility Billing Service (utility reimbursements)

Question 11

Loss to Lease

Answer 11

Reduction of market rent throughout the term of the lease (entire lease)

Question 12

Concessions

Answer 12

Temporary discounts from market rent to induce the signing of a lease (temporary)

Question 13

Potential Gross Income Definition

Answer 13

PGI is the same as Net Effective Rent. Can be calculated two ways: contract rent or market rent.

Contract rent = net effective rent = PGI

Market rent - concessions - loss to lease = net effective rent = PGI

Question 14

Total Revenue (Net Effective Rent Top Line)

Answer 14

Question 15

Total Revenue (Gross Potential Rent Top Line)

Answer 15