MF Investing Flashcards
Stabilized cash flowing properties that are typically located in primary markets
Core
Underperforming properties located in primary or secondary markets
Core-Plus
Properties ripe for renovation or stabilization, located in primary, secondary or tertiary markets
Value-Add
One of the riskiest project types as these have little to no existing cash flow
Opportunistic
Developing land into any product type
Ground-Up Devlopment
Property Classes are based on
combination of physical, geographic, and demographic characteristics
Whats considered as one of the “safest” investments from a risk perspective?
Class A
Usually commands high rents and cash flow.
Class A
Has few amenities, and usually commands fewer rents.
Class B
Able go attract quality, stable tenants even if overall building vacancy tends to tick higher
Class B
Can be lucrative for those with a solid investment strategy but these properties are certainly not without their risk
Class C
Generally over 20+ years older and are in need of significant renovation
Class C
Offers the highest cash flow. Hard earned as these buildings are often management intensive
Class C
Attracts high income earning professionals with high credit scores
Class A
What factors into property classification
Location Age of Building Property condition Amenities Occupancy
Biggest risk with investing in Class A is
Oversupply
Risk associated with investing in Class B is the threat of
Competition
Two largest risks to investing in Class C real estate is
Cost of Repairs
Maintenance Over time
Lower credit and employment stability of tenants
Benefits to Class A
Most desirable renters
6 figure Earners/ Long term tenants
Primary benefit to investing in Class B
Highly durable during economic cycles
Primary benefit to investing in Class C
Price point. Appeals to the broadest range of investors.
Markets with +10 cap rates appeals to
Investors that deploy value add strategies
Low cap rates such as 3-5% being the most attractive place to invest because
Its well established and has high rents. It also has high purchase prices and barriers to entry
Net operating income to property value
Cap Rate
All debt and equity sources combined that were used to fund an investment in real estate
Capital stack
The annual gross cash flow of an investment expressed as a percentage of the initial cash invested.
Cash on Cash Return
Economic incentive granted by an owner to encourage the leasing of space or the renewal of a lease
Concession
NOI to mortgage debt service
Debt Service Coverage Ratio
Net profit + max equity / max equity
Equity Multiple
Amount of rent that an owner would collect if all apartments were occupied and all residents were paying the market rent
Gross Potential Rent
Revenue minis all operating costs, excluding debt service, depreciation, capital expenditures, and income taxes.
Net Operating Income
The % of total apartment units that are occupied
Occupancy Rate
Un discounted return over a single period expressed as a % of the initial capital invested
Return On Investment
(Gains - Cost)/Cost
The sum of all operating costs, not including interest, depreciation, and amortization
Total Operating Expenses
Ratio between the number of units vacated during a specific time period
Turnover Rate
Amount of rent that could have been collected from vacant units if they had been occupied and leased at current market rates
Vacancy Cost
Mortgage that does not have a fixed interest rate
Adjustable Rate Mortgage
Loan that has a predefined interest rate for the entire term of the loan that never changes
Fixed Rate Mortgage
Home or apartment that is completely or very close to move in ready
Turnkey Property
The reduction or elimination of a continuing charge required to be laid by a tenant under a lease for a specified period of time
Abatement
Taxes which are assessed “according to value” such as property taxes
Ad Valorem
% by which the useable sq ft of a tenants premises is increased to arrive at net rentable sq ft. Reflects an allocation of the sq ft of common areas within the building.
Add On Factor
Property insurance which covers losses occurring from fire, explosion, and other perils.
All Risk
Allocation of the cost of an item over its estimated useful life or the payment of an indebtedness by periodic installments
Amoritization
Primary tenant in a shopping center
Anchor tenant
The transfer of ones property, interest or rights to another
Assignment
The act of assuming the obligation of a tenant under a lease
Assumption
The formal agreement by a tenant to become the tenant of a new landlord including the right of the new landlord to collect rent and enforce the provisions of new leases
Attornment
For gross leases the $ amount which recoverable expenses must exceed before a tenant is required to begin paying expense recoveries
Base Amount(Base Stop Amount)
The minimum amount of rent due under a lease
Base Rent
For gross leases, the recoverable expenses for an annual time period above which a tenant is required to pay their proportionate share of such expenses.
Base Year
In retail leases, the amount which Gross Sales must exceed before a tenant is required to begin paying percentage rent.
Breakpoint:
An individual or company who acts as an intermediary to negotiate the sale, purchase or lease of real estate.
Broker
The option to terminate, either partially or entirely, a leasehold interest prior to the stated Expiration Date. In some cancellations, the lease requires the terminating party to pay a fee for the right to cancel.
Cancellation Option
The maximum amount which is required to be paid by a tenant for a charge which, in the calculation of such charge, includes a component which is outside of the tenant’s control.
Cap
An improvement (as opposed to a repair) to a fixed asset which will increase the value or useful life of that asset.
Capital Expenditure
The complete or partial destruction of property as the result of a sudden or unexpected event, such as a flood, fire, storm, etc.
Casualty
A document provided by an insurance company which indicates that a landlord or tenant’s insurance policy is in effect and the levels of coverage contained within the policy.
Certificate of Insurance:
The date upon which the landlord and tenant’s rights and obligations pursuant to a lease begin.
Commencement Date:
Item(s) of economic benefit granted from a landlord to a tenant to induce the tenant to enter into a lease transaction. Includes rent abatements/free rent, moving allowances, lease buyouts, above standard tenant improvement allowances and space plan/drawing allowances.
Concession
The taking of private property by the government for public use through the process of eminent domain.
Condemnation
A clause in a retail tenant’s lease which obligates the tenant to remain open for business throughout the term of its lease.
Continuous Operations Clause
The option of a tenant or landlord to reduce the amount of space leased by such tenant
Contraction Option
A clause in a retail tenant’s lease which provides remedies to a tenant in the event that another tenant, typically an anchor or major tenant, ceases its operations at the property.
Co-Tenancy
Abbreviation for ‘doing business as’. Represents a tenant’s trade name, as opposed to the legal name of the tenant’s business.
DBA
The non-performance of a lease obligation by the landlord or tenant.
Default
The date on which a lease clause, typically an option, becomes operative.
Effective Date:
The right of a governmental agency to take private property for public use via condemnation in return for adequate compensation.
Eminent Domain:
A lease clause that provides for an increase in rent at a specified future date(s). The most common types are (a) fixed increases in Base Rent; and (b) Consumer Price Index Adjustments.
Escalations
The right granted to a tenant to be the only tenant in a property who may engage in a specified business use at that property.
Exclusivity
The sheltering of a party from liability arising out of negligence.
Exculpation
An option granted to a tenant allowing the tenant to increase the amount of leased premises at a future date
Expansion Option
A reimbursement by the tenant to the landlord for expenses of a property which are originally paid by the landlord.
Expense Recovery
For gross leases, the amount which recoverable expenses must exceed before a tenant is required to begin paying Expense Recoveries
Expense Stop
The date upon which the landlord and tenant’s rights and obligations pursuant to a lease end.
Expiration Date
An option granted to tenant allowing the tenant to lengthen the lease term at a pre-defined rental rate.
Extension Option
A concession granted to a tenant in the form of a partial or whole abatement of rent for a specified period of time as an inducement to enter into a lease.
Free Rent
Calculated as the summation of all rentable areas plus all common areas of a building.
GLA
A clause in a retail tenant’s lease which allows a tenant to cease operations at a property if a defined event(s) should occur.
Go Dark:
A lease type whereby the landlord is responsible for the payment of all recoverable expenses of the building.
Gross Lease
The total of all sales made by a retail tenant
Gross
Sales items which are excluded from the definition of Gross Sales within a lease in the computation of Percentage Rent.
Gross Sales Exclusions
A lease clause that allows the landlord to increase recoverable expenses which vary with occupancy to an amount that would be incurred if a defined level of occupancy was achieved.
Gross-Up
A person or entity that agrees to perform the contractual obligations of another if the other party shall fail to so perform.
Guarantors
Materials, often defined by governmental law or statute, which if introduced onto a property by either a landlord or tenant could result in a reduction of the value of the property or the ability of a tenant to use their leased premises for the purposes outlined in the lease
Hazardous Materials
A tenant who remains in possession of leased premises after the expiration date of the lease.
Holdover
used to classify companies by the type of goods and/or services that they provide
IC Code
One who owns an interest in real property and has leased such interest, or a portion thereof, to another party (the Tenant). Also called a ‘Lessor’.
Landlord
A fee which may be charged by the landlord or a representative thereof for supervision of repairs or alterations to a tenant’s premises
Landlord Supervision Fee
A charge assessed against a tenant for failing to pay rent when due.
Late
An agreement whereby the owner of real property grants the right of possession to another party for a specified period of time and for a specified consideration
Lease
Amount paid by the landlord for Rent on the unexpired term of a tenant’s lease in a building not owned by landlord.
Lease Buyout
Also called the ‘Demised Premises’, refers to the size and location of the premises to which the tenant has obtained possession pursuant to a Lease.
Leased Premises
One who has the temporary possession of real property owned by another (the ‘Landlord’). Also called a ‘Tenant’.
Lessee
One who owns an interest in real property and has leased such interest, or a portion thereof, to another party (the Tenant).
Lessor
The agreement of a bank on behalf of a customer to honor drafts or other demands for payment upon compliance with the conditions of the letter of credit.
Letter of Credit
Protection from claims arising from death, injury or damage to other people or property
Liability Insurance
The percentage by which the gross area of a building is reduced to arrive at the useable area.
Loss Factor
The amount of rent being paid under leases for a comparable lease term at properties that are comparable in terms of size, location and quality
Market Rent:
A fund established by the landlord of a retail property whereby tenants are required to make specified contributions to the fund for the purpose of promoting the property in the local media.
Media Fund
An association organized by a landlord of a shopping center but operated jointly by landlord and tenants of the center which collects funds for use in the advertising and promotion of the center to the benefit of all tenants
Merchant Association
RUBs
resident utility billing system
Rules of Engagement
Inc>Exp Noi>MP Cash Flow must be positive Cash on Cash return greater than 9% Cap rate Greater than 7%
5 Things to Analyze A Deal
Income and Expenses NOI Cash Flow Cash on Cash Return Cap Rate
Cash Flow Formula
NOI - M.P
Cash Flow Formula
Annual CF / Down Payment
Cap Rate Formula
NOI/Purchase price
7 Things to look for when investing in apartments
Goal Location Property Numbers Management Strategy Exit Strategy Ask Tough Questions
The amount of Gross Sales which, when multiplied by the Overage Percentage, equals Base Rent
Natural Breakpoint
A lease provision which grants a tenant the right to remain in occupancy of the leased premises regardless of a change in the ownership of the property, so long as the tenant continues to fulfill their lease obligations.
Non-Disturbance
The date by which either the landlord or tenant must provide notice to the other party that they wish to exercise a lease clause, typically an option.
Notification Date
Abbreviation for Net Rentable Area, and defined as the measurement of a building or suite upon which rent is calculated.
NRA
The right of a tenant to make a deduction from rental payments in an amount equal to that expended by the tenant to make a payment which is the obligation of the landlord, often due to a landlord default.
Offset Rights
Amounts that are paid to operate and maintain the income-producing property.
Operating Expenses
A right granted to either the landlord or tenant to purchase or lease property at a specified time, at specified terms and under defined circumstances
Option
A freestanding building site within or adjacent to a shopping center. Examples of outlots include gas stations, restaurants, or banks.
Outlot
The percentage which is multiplied by Gross Sales in the calculation of Overage (i.e., Percentage) Rent.
Overage
Rent paid by a retail tenant which is based upon a percentage of Gross Sales in excess of a specified dollar amount (the Breakpoint)
Overage Rent
A freestanding building site within or adjacent to a shopping center.
Pad
The ratio calculated as the number of parking spaces available per one thousand square feet of rentable area.
Parking Ratio
A reimbursement by the tenant to the landlord for expenses of a property that are originally paid by the landlord.
Pass Through
Rent paid by a retail tenant and calculated as a percentage of Gross Sales which is paid by the tenant in lieu of Base Rent
Percentage in Lieu
Rent paid by a retail tenant which is based upon a percentage of Gross Sales in excess of a specified dollar amount (the Breakpoint).
Percentage Rent
In retail leases, the amount which Gross Sales must exceed before a tenant is required to begin paying percentage rent.
required
The hourly wage rate, as published by the appropriate labor union, currently being paid for the services of porters.
Porter’s Wage
An increase (and sometimes decrease) in the Rent required to be paid by a tenant-based upon changes in the Porter’s Wage over a specified time period.
Porter’s Wage Adjustment
A fund established by the landlord of a retail property whereby tenants are required to make specified contributions to the fund for the purpose of promotion of the property.
Promotional
The percentage of reimbursable expenses to be reimbursed by a tenant to the landlord.
Proportionate Share
The percentage which, when multiplied by reimbursable expenses (less an Expense Stop if a Gross Lease), equals the amount to be reimbursed by a tenant to the landlord for Expense Recoveries
Pro-rata Share
The right granted to a tenant to purchase a building (typically the building for which they are currently in occupancy) at a specified time in the future and for a specified price.
Purchase Option
The right of a tenant to occupy their leased premises free from disturbance.
Quiet Enjoyment
In retail leases, a clause which prohibits a tenant from opening a similar or competing store within a defined area from the location of the leased premises
Radius Restriction
Amounts payable by the tenant pursuant to a lease which may be offset against Percentage Rent due
Recapture (Percentage Rent)
The right of a landlord to terminate the lease for space for which a tenant has presented notice of its intent to sublease and/or assign
Recapture (Sublease/Assignment)
Also called a ‘True-up Billing’, reflects a billing to tenants for the difference between estimated payments made by the tenant for an item of Rent (usually Expense Recoveries) and the actual payment due
Reconciliation Billing
Operating Expenses of a property which may be passed through to tenants in accordance with the terms of their respective leases.
Recovery Pool
An allowance granted to a tenant subsequent to the commencement date of their lease to be used for the purpose of improving the leased premises
Refurbishment:
An option granted to a landlord to change the location of a tenant’s premises upon landlord’s provision of notification within a certain time period prior to the relocation date
Relocation Option
The rights granted to the landlord or tenant within a lease which that party may exercise in the event of a default by the other party
Remedies
The right of a tenant to extend the lease term for a specified period of time and at a pre-defined rental rate.
Renewal Option
The cost of replacing an improvement with one having the same utility.
Replacement Cost
A limitation placed upon the use of the leased premises.
Restriction
Also called a ‘ROFO’, a right granted to the tenant to lease additional, pre-defined space when such space becomes ‘available for lease’ and before such space is offered on the open market.
Right of First Offer
a right granted to the tenant to lease additional, pre-defined space after a bona-fide offer has been received from a third party for such space.
Right of First Refusal
A retail lease provision whereby the landlord has the right to terminate a tenant’s lease in the event that the tenant does not achieve a particular level of Gross Sales.
Sales Kick-Out Clause:
A deposit made by a tenant, in the form of cash, letter of credit or both, to secure the tenant’s performance of its monetary obligations under a lease and to offset damages due to tenant’s negligence.
Security Deposit
The right of a tenant or landlord to set aside funds to protect against losses rather than purchasing insurance for such protection
Self-Insurance
A contract entered into with a third party for the provision of building services, such as janitorial, landscaping, elevator maintenance and building management.
Service Contract
The right of a tenant to provide identification of their company name or the name of key employees on or within a building
Signage
A lease executed by a tenant (the ‘Sub-Lessor’) to another lessee (the ‘Sub-Lessee’) for a term equal to or shorter than that held by the tenant under it’s original lease with the landlord
Sublease
The substitution of one person into the place of another with regards to a legal right or claim
Subrogation
A monetary allowance granted from the landlord to a tenant to entice tenant to move into landlord’s building which will enable the tenant to prepare the leased premises for tenant’s occupancy.
Tenant Allowance
An option granted to either a landlord or tenant to end the term of a lease prior to the scheduled Expiration Date.
Termination Option
Consideration to be paid by the terminating party to the non-terminating party in order to end the term of a lease via a Termination Option
Termination Penalty
Rent stipulated in a lease which requires the tenant to pay it’s proportionate share of real estate taxes, insurance and operating expenses.
Triple Net
Also called a ‘Reconciliation Billing’, reflects a billing to tenants for the difference between estimated payments made by the tenant for an item of Rent (usually Expense Recoveries) and the actual payment due
True-Up
A clause that defines the business activities which may be conducted by a tenant within their leased premises.
Use Clause
Represents the actual square footage contained within a tenant’s premises.
USF
A legal document that outlines the obligations of the landlord in regards to the improvements necessary to prepare leased premises for a tenant’s occupancy
Workletter
Break even/occupancy percentage formula
Annual operating expenses + All debt divided by potential gross income
What it is called when you’re raising money for a targeted asset
A Syndication
Raising capital to go and find an asset, or multiple as long as it meets the guidelines
A Fund
A Fund must be registered with
the SEC
