HW Quiz 3 Flashcards by Annie Wu

Which property type typically does not contain an anchor tenant?

Factory Outlet

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Land of a gas station that is impaired with subsurface pollutants is

Brownfield Land

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Percentage of GLA of super-regional mall

10%

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Percentage of GLA of regional mall

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Percentage of GLA of community centre

25%

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Percentage of GLA of neighbourhood centre

31%

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Percentage of GLA of strip centre

12%

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Percentage of GLA of power centre

13%

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TRUE or FALSE: Land prices in Chicago CBD are very high. Therefore, we normally should not observe many vacant lots in this area.

False

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What type of shopping centre represents the largest share of industry GLA in aggregate in the US retail industry?

Neighbourhood centres

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TRUE or FALSE: Real estate space market is highly segmented in two dimensions: location and property type.

True

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Which retail property type typically serves the largest trade area?

Factory outlet

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Trade Area

Where customers live and how far they are likely to travel to a particular business or business district

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3 basic components of rent in retail leasing agreements

base rent
base rent escalation
percentage rent/overage

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Anchor tenants usually pay _____ rent than inline store tenants because of their ability to attract customers to the center.

lower

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What are ways that the landlord can protect themself in the case that a tenant cannot fulfill its lease obligations?

-Getting individual entrepreneurs and partners of the tenant to sign the lease
-Having the parent company of the subsidiary as a signatory to the lease
-Requiring that a tenant put up a security deposit or letter of credit

Imagine you are the owner of a regional mall and you signed a lease with a woman’s clothing store that states that if the anchor store goes dark, they will not pay rent. This lease clause is known as

Co-tenancy clause

Which of the following prohibits a tenant from opening another location within a certain distance of the leased premises?

Radius restriction – protect the landlord from the tenant potentially cannibalizing sales at the center by opening another store across the street at a competing centre

Ann leases 5,000 square feet from Peter’s office building in Ithaca, NY. The rent is $18 per s. f. per year, what is the monthly rent payment?

$7,500

TRUE or FALSE: To protect the landlord, it is common to ask tenants to put up a security deposit or letter of credit, which is only available to the landlord as recourse if the tenant fails to perform on the lease. Therefore, when a tenant goes bankrupt, the landlord will receive rent from the tenant on time.

False: The bankruptcy court may rule that the deposits and line of credit are corporate assets that must be used to satisfy the claims of the most senior lenders, which have priority over the landlord

TRUE or FALSE: A commercial lease must be extremely precise in describing the kind of business activities the tenant can, and cannot, conduct in the space.

True

TRUE or FALSE: Tenants and the landlord of a shopping center normally have aligned preferences regarding the length of the leases. Both tenants and the landlord prefer long-term leases.

False: Tenants usually want a very short-term lease with a lot of extension options. Landlords usually prefer the security of a long-term lease.

What is it called when an anchor tenant decides to close their store with a lease still in effect and move to a competing center while still making their minimal lease payments?

Going dark: When an anchor tenant decides to close their store with a lease still in effect and move to a competing center while still making their minimal lease payments it is called going dark.

TRUE or FALSE: During a real estate market downturn, Class A office buildings are generally more resilient and tend to remain better leased than Class C offices in the same location.

True: It is true that the flight to quality phenomenon exists in the real estate market.

TRUE or FALSE: Tenant improvement refers to the interior space physical improvement necessary to make a tenant’s space fully operational. Therefore tenants must pay the allowance and be responsible for completing the work.

False: Tenant Improvement allowance refers to the work budget provided by the landlord. Who pays the TI and who is responsible for completing the work are dictated by the market conditions.

What are all the components of rent in a typical retail plaza lease?

1. Percentage rent 2. Base rent escalations 3. Base rent

A shopping mall owner typically maximizes the total rental revenue from a mix of tenants in the center, which include anchors (e.g., a department store) and in-line stores (smaller stores located between the anchors). Which type of store pays higher rents (in terms of per s. f. per year)?

In-line Store

Percentage rent is used in leases for which property type?

Retail: For retail space, the landlord controls the store mix and overall retail experience, both of which can increase tenant sales. Percentage rents create an incentive for the landlord to provide a favourable shopping experience, therefore aligning the interests of the tenant with those of the landlord.

What is CAM?

-Common area maintenance -Can be allocated pro rata according to the square footage of various tenants. -Utility costs associated with lobby areas -Security costs associated with hallways in malls. -Costs associated with maintaining common areas of a property

TRUE or FALSE: In a weak market, tenants are looking for rent concessions. Suppose a TI allowance is computed upfront as the present value of the rent discounts. Is the following statement true or false? Since the TI allowance is equivalent to the PV of rent concessions, the owner should be indifferent between providing TI allowance versus offering discounted rents to tenants.

False: Even though the two are equal in terms of present value, for owners, TI goes into the building, while rent concessions walk out your door. In most cases, tenants also like TI, because it helps the tenant to make the store fully operational without money out of her pocket.

Overage (percentage rent) incentivizes the landlord to create and maintain a productive retail environment, resulting in _______ sales revenue.

increased

TRUE or FALSE: Triple net lease (also called NNN lease) is a lease structure in which the tenant only pays the rent, and the landlord pays all operating costs including property taxes, insurance, and utilities.

False: Triple net lease (also called NNN lease) is a lease structure, most common in retail properties, in which the tenant pays all operating (and frequently capital) costs, including insurance, utilities, and property taxes in addition to the contractual base rent and escalations.

Select all of the true statements: -If a tenant goes dark he can occupy the property but is exempt from paying rent. This only occurs in retail properties where the landlord has not leased according to promises. -Landlords do not care if a tenant sublets their space because they will get paid the same rent and will not suffer credit risk as the original tenant is still on the hook for rent. -Landlords will never allow a going dark clause in their leases. -Going dark refers to a property that is free from segregation. -None of the Options -Recourse to a subsidiary of a major company is just as good as having recourse to the parent company.-

None of the options

An anchor store, which occupies 40% of your shopping center, pays little base rent. What happens if the anchor decides to close the store with a lease in effect for 15 more years in your shopping center and move to a competing center? Select all correct answers. -The anchor store will not pay any rent, because the tenant has decided to stop operating in your centre -The anchor store will continue making its minimal lease payments to you. -When the anchor leaves, your center will have dramatically-reduced traffic, destroying the performance of your in-line tenants, who are your primary sources of rental income. -The anchor’s behaviour described in the question is known as “going dark” -The landlord will have a significant physical vacancy, but not an economic vacancy

The anchor store will continue making its minimal lease payments to you. When the anchor leaves, your center will have dramatically-reduced traffic, destroying the performance of your in-line tenants, who are your primary sources of rental income. The anchor’s behaviour described in the question is known as “going dark” The landlord will have a significant physical vacancy, but not an economic vacancy

What is overage?

Additional rent (over a base amount) that is paid by tenant to owner on tenant's sales over a specified dollar amount

TRUE or FALSE: True or False: Roughly 90% of products sold in a regional mall are purchased on impulse. Therefore, you want to maximize the retail stimuli since the more stimuli, the more shoppers will tend to spend.

True: Roughly 90% of products sold in a regional mall are purchased on impulse. Therefore, you want to maximize the retail stimuli since the more stimuli, the more shoppers will tend to spend.

Ann Taylor leases 5,000 square feet from Peter’s shopping center in Ithaca, NY. The lease contract has the following terms: Base rent = $10 per s. f. per year in 2017 (year 1) Base rent escalation = 3% per year Percentage rent = 5% for any sales above the breakpoint Breakpoint = $200 per s. f. per year The total store sales of Ann Taylor at Peter’s center in January 2020 (year 4 of the lease) is $85,000 What are the rent payments for Ann Taylor in January 2020?

$4,636