Overall Real Estate Flashcards
What is a Capital Improvement?
A Capital Improvement is:
The addition of a permanent structural improvement or the restoration of some aspect of a property that will either enhance the property’s overall value or increases its useful life. Although the scale of the capital improvement can vary, capital improvements can be made by both individual homeowners and large-scale property owners.
What is RevPAR?
Revenue Per Available Room - RevPAR:
A performance metric in the hotel industry, which is calculated by multiplying a hotel’s average daily room rate (ADR) by its occupancy rate. It may also be calculated by dividing a hotel’s total guestroom revenue by the room count and the number of days in the period being measured.
RevPAR does not take into account revenue from other hotel services, such as restaurants, spas, golf courses, marinas, casinos etc.
Whats is RevPOR?
Revenue Per Occupied Room - RevPOR:
An industry metric used to evaluate companies in the hotel and lodging industries. RevPOR is used in conjunction with, or in place of, the more standard revenue per available room (RevPAR) statistic. RevPAR is calculated by taking the RevPOR value and multiplying it by the occupancy rate.
RevPOR may also be expressed as “total RevPOR”, which includes not only the room rate itself, but also any extra services such as room service, laundry services and in-room movie viewing, among others.
For many hotel operators, the total revenue received per room can be much more than the per-day “boilerplate” rate, and is a more full expression of how much the company is receiving per customer. RevPOR is used by analysts to determine the total revenue and profit potential of a company; occupancy rates will rise and fall with the general and local economy, but RevPOR is a metric that stands independent of how full the hotel is at any point in time.
What is ADR?
Average Daily Rate - ADR
A metric widely used in the hospitality industry to indicate the average realized room rental per day. Average daily rate is one of the core indicators - along with other metrics such as occupancy rate and revenue per available room - used to measure the operating performance of a lodging unit such as a hotel or motel. Generally abbreviated as ADR.
For example, if a hotel has average daily revenue over a calendar quarter of $50,000 and has 500 rooms available per day, the ADR would be $100. This ADR would be used to compute the trend over time, particularly in relation to the ADR in the previous calendar quarter and the ADR in the year-ago quarter. It would also be used as a basis for comparing operating performance against other hotels that have similar characteristics such as size, clientele and location.
What is a PSA?
Purchase & Sales Agreement - PSA:
Many people looking to get into the fantastic career of commercial real estate have asked what a PSA is. A PSA is just an abbreviation commercial real estate agents and brokers use for a “Purchase & Sales Agreements” To further explain what a PSA is, and how the documents is drafted in order to protect all parties during the transaction in the purchase and sales of commercial real estate properties is fairly simple, but extremely vital component in all commercial real estate transactions.
“A real estate contract is a contract for the purchase/sale, exchange, or other conveyance of real estate between parties. Freehold (“More permanent”) is the conveyances of real estate covered by real estate contracts, including conveying fee simple title, life estates, remainder estates, and freehold easements. Real estate contracts are typically bilateral contracts (i.e., agreed to by two parties) and should have the legal requirements specified by contract law in general and should also be in writing to be enforceable.” Source: http://en.wikipedia.org/wiki/Real_estate_contract
There are several aspects to a PSA (Purchase and Sales Agreement) that must be included in all contracts in order to make them legally binding and enforceable. Below are a list of those items, and a brief explanation to each.
MANDATORY PURCHASE AND SALES AGREEMENT REQUIREMENTS:
- Identification Of The Parties: The full and legal name of the parties involved must be included in the PSA. In the purchase and sales agreement, the parties involved are referred to as the seller(s) and buyer(s) or Principles.
- Identification Of The Property: The address and/or APN# of the property (Assessor’s Parcel Number) must be included in all PSA’s.
- Consideration: The Purchase Price of the commercial real estate in questions. Consideration is considered something of value bargained for in exchange of the real estate. Money is the most common form of consideration, but other consideration of value, such as other property in exchange, or a promise to perform (i.e. a promise to pay) is also satisfactory.
- Principle Signatures: All commercial real estate contracts must be entered into voluntarily (not by force), and must be signed/executed by the Principles, to be legally enforceable.
- Have Legal Purpose: The purchase contract would be considered invalid if it calls for either party to perform an illegal action.
- A Meeting Of The Minds: Each party/principle to the commercial real estate transaction bilaterally agrees to the terms and condition outlined in the PSA (purchase and sales agreement)
- Closing Date: A traditional commercial real estate purchase contract must specify a date by which the closing must occur. The closing is the event in which the money (or consideration) for the real estate is paid and the real estate is conveyed from the seller(s) to the buyer(s).
In addition to the mandatory requirements for a legally and binding purchase and sales agreement, there are other items that will customarily negotiated within the contract by the principles such as;
- Deposit Amount
- Books and Records & Physical Inspection Contingency Timeframe
- Commissions
- Property Condition
- Credits
- Title & Escrow Preferences
Once these mandatory PSA conditions have been fulfilled and only after both parties have agreed to the terms and conditions of the PSA(purchase and sales agreement), will you have a legally binding and fully executed PSA, which is often referred to as an “Offer & Acceptance”
What is LIBOR?
LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate that some of the world’s leading banks charge each other for short-term loans. It stands for IntercontinentalExchange London Interbank Offered Rate and serves as the first step to calculating interest rates on various loans throughout the world.
LIBOR is administered by the ICE Benchmark Administration (IBA), and is based on five currencies: U.S. dollar (USD), Euro (EUR), pound sterling (GBP), Japanese yen (JPY) and Swiss franc (CHF), and serves seven different maturities: overnight, one week, and 1, 2, 3, 6 and 12 months. There are a total of 35 different LIBOR rates each business day. The most commonly quoted rate is the three-month U.S. dollar rate.
Whats is Non Recourse debt?
Non Recourse debt:
A type of loan that is secured by collateral, which is usually property. If the borrower defaults, the issuer can seize the collateral, but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount. This is one instance where the borrower does not have personal liability for the loan.
What is Recourse debt?
Recourse debt is a debt that is not backed by collateral from the borrower. Also known as a recourse loan, this type of debt allows the lender to collect from the debtor and the debtor’s assets in the case of default as opposed to foreclosing on a particular property or asset as with a home loan or auto loan.
What is a Carve-Out?
The partial divestiture of a business unit. A company undertaking a carve-out is not selling a business unit outright, and may instead sell an equity stake in that business or spin the business off on its own while retaining an equity stake itself. A carve-out allows a company to capitalize on a business unit that may not be part of its core operations.
A company may use a carve-out strategy rather than a total divestiture for several reasons, and regulators take this into account when approving or disapproving such restructuring. Sometimes a business unit is deeply integrated, making it hard for the company to sell the unit off completely while keeping it solvent. Those looking at investing in the carve-out must consider what would happen if the original company completely cut ties, and what prompted the carve-out in the first place.
What is Fair Market Value?
‘Fair Market Value’
The price that a given property or asset would fetch in the marketplace, subject to the following conditions:
- Prospective buyers and sellers are reasonably knowledgeable about the asset; they are behaving in their own best interests and are free of undue pressure to trade.
- A reasonable time period is given for the transaction to be completed.
Fair market values are widely used across many areas of commerce. For example, municipal property taxes are often assessed based on the fair market value of the owner’s property. Depending upon how many years the owner has owned the home, the difference between the purchase price and the residence’s fair market value can be substantial.
Fair market values are often used in the insurance industry as well. For example, when an insurance claim is made as a result of a car accident, the insurance company covering the damage to the owner’s vehicle will usually cover damages up to the fair market value of the automobile.
