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BusFin 3400 > Midterm 1 > Flashcards

Midterm 1 Flashcards

1
Q

3 reasons why Real Estate is considered a safe place to hold your wealth

A
  • Harder to steal than cash or jewels
  • Something to pass on to next generation
  • You could touch it and check on it every day
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2
Q

After WWII, ___ encouraged home ownership; Major factor in creation of the middle class

A

GI Bill

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3
Q

___ sold off shares in real estate, mainly for tax advantages.

A

Syndicators

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4
Q

___ interest deduction for commercial as well as residential owners.

A

Mortgage

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5
Q

___ rules and ___ rules encouraged generational transfers.

A
  • Capital gains
  • Inheritance tax
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6
Q

The tax law changes in 1986 eliminated the benefits of ___ for most individual investors.

A

Syndications

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7
Q

Tax law changes, as well as a decline in ___ prices led to a series of “rolling recessions” across the country.

A

Oil

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8
Q

In the late 80s-early 90s, new legislation allowed pension funds to invest in real estate as a separate asset class - creating ___.

A

Institutional real estate

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9
Q

Real estate operating companies were faced with option of filing bankruptcy or filing IPO’s, leading to the birth of the modern ___.

A

REIT market

(Real Estate Investment Trusts)

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10
Q

5 reasons to invest in real estate today

A
  • Real Property - Tangible - provides psychological satisfaction
  • Major source of wealth creation
  • Tax laws still favor real estate and REIT investment
  • Fits between Bonds and Stocks on risk/reward continuum
  • Inflation hedge
    • Rents reset as leases expire, moving with inflation
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11
Q

Property type characteristics: Office

  1. Easy or hard to duplicate
  2. Development time frame
  3. Capital intensive
  4. Lease term
A
  1. Hard
  2. Long
  3. Yes
  4. Long
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12
Q

Property type characteristics: Industrial

  1. Easy or hard to duplicate
  2. Development time frame
  3. Capital intensive
  4. Lease term
A
  1. Easy
  2. Short
  3. No
  4. Midterm
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13
Q

Property type characteristics: Retail

  1. Easy or hard to duplicate
  2. Development time frame
  3. Capital intensive
  4. Lease term
A
  1. Depends
  2. Depends
  3. Depends
  4. Depends
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14
Q

Property type characteristics: Multi family

  1. Easy or hard to duplicate
  2. Development time frame
  3. Capital intensive
  4. Lease term
A
  1. Easy
  2. Moderate
  3. Moderate
  4. Short
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15
Q

Property type characteristics: Hotels

  1. Easy or hard to duplicate
  2. Development time frame
  3. Capital intensive
  4. Lease term
A
  1. Hard
  2. Long
  3. Yes
  4. Nightly
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16
Q

3 ways to value real estate

A
  • Replacement cost
  • Compare to comparable sales
  • Income method
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17
Q

Valuation by ___ is what it would cost to build an identical building in that same spot. Most useful if you are comparing purchase price of recently built building.

A

Replacement cost

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18
Q

Valuation by ___ is comparing the asking price of this property to recent nearby sales of similar properties. Because it’s measuring past activity, always lags, too low in rising market, too high in falling market.

A

Comparable sales

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19
Q

Valuation by ___ is inherently risky because real estate is not a commodity and no two properties are quite the same.

A

Comparable sales

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20
Q

Valuation by ___ evaluates the prices based on expected return (NOI).

A

Income method

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21
Q

The Net Operating Income (NOI) is defined as…

A

Operating Revenues minus Operating Expenses

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22
Q

3 things NOI does not include

A
  • Expenses at corporate level
  • Depreciation
  • Leverage
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23
Q

How is Capitalization Rate calculated?

A

NOI/Investment

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24
Q

___ can be defined as the rate of return on an investment based on the income the property is expected to generate.

A

Cap Rate

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25
Q

Projected NOI is ___ or ___.

A
  • Budget
  • Pro Forma
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26
Q

Projecting NOI by ___ is when you estimate by operating business for the next year.

A

Budget

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27
Q

Projecting NOI by ___ is when you estimate by potential investor for the next year.

A

Pro Forma

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28
Q

4 things that could go wrong projecting NOI

A
  • Estimated revenues are off
  • Estimated expenses are off
  • Estimated capital needs are off
  • Difficult to project anything 12 months in advance
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29
Q

___ is used for manufacturing or production. It’s usually corporate-owned and not institutional unless a sale lease-back.

A

Heavy industrial

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30
Q

___ may be used for light manufacturing, warehousing, and business distribution.

A

Light industrial

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31
Q

___ are building(s) used to sort, store, and facilitate the distribution of goods from producers to retailers or directly to consumers.

A

Bulk distribution

32
Q

In a ___ lease, the tenant pays:

  • Property taxes
  • Insurance
  • Maintenance
  • Rent & utilities
  • Easy for landlord to manage

Most industrial properties have these leases.

A

Triple Net (NNN)

33
Q

In a ___ lease, tenant pays rent & utilities, landlord pays everything else.

A

Gross

34
Q

In a ___ lease, tenants pays property taxes, insurance, rent & utilities. Landlord pays maintenance.

A

Double Net (NN)

35
Q

In a ___ lease, tenant pays property taxes, rent & utilities

A

Single Net (N)

36
Q

4 drivers of industrial demand

A
  • Industrial production
  • Consumer spending
  • Trade
  • GDP
37
Q

Bulk distribution accounts for about _% of US inventory, but that percentage is growing.

A

20

38
Q

Light industrial/business distribution accounts for _% of US inventory.

A

50-60

39
Q

___ industrial is a broad category that includes:

  • Data centers
  • Manufacturing
  • Cold storage
  • Truck terminal facilities
A

Specialty

40
Q

In 2019, ___ accounted for 11.39% of US GDP and employed 8.5% of the workforce

A

Manufacturing

41
Q

What is the biggest industrial maintenance expense?

A

Roof and parking lots

42
Q

6 drivers of property demand

A
  • Location
  • Relative age and obsolescence within market
  • Access from highway
  • Room for trucks to get in and turn around
  • Extra parking or storage area
  • Room to grow
43
Q

Growth of ___ is having huge impact on industrial demand.

A

E-commerce

44
Q

Same day deliveries mean warehouses must be near consumers - ___

A

“Last Mile”

45
Q

2 typical office users

A
  • Service industry - accountants, lawyers, finance
  • Administration
46
Q

Office demand is highly tied to ___.

A

GDP growth

47
Q

3 types of offices

A
  • CBD (Central Business District)
  • Suburban
  • Specialty
    • Medical office (MOB)
    • R&D/Laboratory
    • Flex-Single-story
    • Tech/Telecom
48
Q

Office leases are usually long term, around…

A

15 years

49
Q

___ are a tool used by landlords to limit their exposure to operating costs. They’re negotiated as part of the lease and they ensure a more predictable income stream for landlords.

A

Expense stops

50
Q

___ is the ratio of a building’s total floor area to the size of the piece of land upon which it was built.

A

Floor Area Ratio (FAR)

51
Q

Higher FAR indicates…

A

greater building volume

52
Q

FAR can be used to limit…

A

intensity of land use

53
Q

How to calculate Gross Floor Area?

A

Floor area of first story + floor area of second story + … + floor area of nth story

54
Q

How to calculate Buildable Land Area?

A

(Parcel width x Parcel depth) - Undevelopable land

55
Q

How is parking ratio calculated?

A

of parking spaces divided by building’s square footage (Generally stated as per 1,000 sq feet)

56
Q

___ is property used to market and sell commercial goods and services.

A

Retail

57
Q

4 key drivers of retail

A
  • Tenants
  • Consumers
  • Economy
  • Location
58
Q

In retail, more attractive tenants (___), pay less than other tenants.

A

Anchors

59
Q

___ reimbursement is generally calculated pro rata based on percentage of total space occupied by tenant.

A

Common Area Maintenance (CAM)

60
Q

What is the 3/2/1 rule in retail?

A
  1. 3 main contenders to begin
  2. Two merge, leaving two contenders
  3. Those two duke it out, one remains
61
Q

___ is a type of retail that provides for the sale of daily living needs of the immediate area. Typical area is 30,000-150,000 square feet with one anchor tenant.

A

Neighborhood Center

62
Q

___ is a type of retail that provides for the sale of goods such as apparal or furniture in addition to convenience goods. Typical area is 100,000-350,00 square feet with 2+ anchor tenants.

A

Community Center

63
Q

___ is a type of retail that provides a variety of goods comparable to those in a central business district in a small city, including general merchandise, apparel and home furnishings, as well as a variety of services and perhaps recreational facilities. Two or more full-line department stores anchor a total of 400,000-800,000 square feet.

A

Regional center

64
Q

___ is a type of retail that provides an extensive variety of shopping goods comparable to those of the central business district of a major metropolitan area. The anchors are three or more full-line department stores, with total area in excess of 800,000+ square feet.

A

Super-Regional Center

65
Q

___ is a type of retail with typically 80,000-250,000 square feet with no dominant anchors, consisting of higher-end fashion oriented tenants.

A

Fashion/Specialty Center

66
Q

___ is a type of retail center that’s typically 250,000-600,000 square feet with three or more anchor stores that occupy 75-90% of the total area. Anchor stores are a “category-dominant” home improvement, discount department stores, warehouse clubs, and off-price stores.

A

Power Center

67
Q

___ is a type of retail center anchored by restaurants or other entertainment facilities and oriented toward leisure and tourist-oriented goods and services. Typically 80,000-250,000 square feet.

A

Theme/Festival Center

68
Q

___ is a type of retail center that’s typically 50,000-400,000 square feet, often in resort or destination locations, and the tenants are manufacturers rather than traditional retailers

A

Outlet Malls

69
Q

___ is a type of retail that’s a free-standing structure with no additional anchor stores.

A

Single-Tenant

70
Q

___ is a type of retail that’s retail, office, and residential in a single property

A

Mixed-Use

71
Q

___ is defined 5 or more units in a building or group of buildings - 18,700,000 units in the US. Does not include single-family rentals or 2-4 unit properties. Comprises 43% of all rental housing.

A

Multifamily

72
Q

Multifamily investments are favored by investors due to:

(4 points)

A
  • Attractive total returns
  • Consistent, long-term income
  • Considered to be relative safe investment with modest risk
  • Diversification of investment portfolio due to low correlation with other asset classes
73
Q

Housing Affordability is gauged against ___ of an area.

  • Luxury renters earn 100-120% of ___
  • Workforce housing rents for those who earn 80-100% of ___
  • Affordable rents for those who earn 60-80% of ___
  • Low income properties reserved for those who earn 60% or below ___
A

Average Median Income (AMI)

74
Q

__% of the US population lives in rental housing

A

37

75
Q

Multifamily land costs have been drastically affected by more difficult ___

A

Entitlement process

BusFin 3400 (5 decks)

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