Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

FINA 320 > Powerpoint class 4 > Flashcards

Powerpoint class 4 Flashcards

1
Q

What is A Lease?

A

Contract between a property owner (lessor) and tenant (lessee) that transfers exclusive use and possession of space to the tenant

engines that drive values and returns

when we purchase multi-tenant properties, we acquire portfolios of leases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

are one year leases common in residential properties?

A

yeee

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

In retail office, and industrial properties, leases may run for how long?

A

from 3 years to 20 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

advantages and disadvantages of longer leases

A

minimize transaction costs

provide rental rate security for tenant & owner

decrease tenant & owner flexibility

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Base rents (minimum rent)

A

initial rent must be paid under the lease contract

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Flat rents

A

rents remain the same for the term of the lease

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

when are flat rents common?

A

Common for lease with frequent tenants/users turnover

Apartment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Graduated/escalated/step-up rents

A

Rent bumps/escalations are specified in lease

ex: base rent =$18/sqft and will increase by $1/sqft each year for the 5 years

Office, Retail, Warehouse

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Indexed rents

A

Rent increases are tied to, say, the CPI (not common in recent years)

we include caps in inflation and floors in deflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

why are indexed rents riskier?

how does this affect base rents usually?

A

Changes of rents are unknown (more risk)

lower base rents

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Percentage rents features

A

in retail

percentage of over breakpoints of sales

indicator: sales

breakpoints

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

gross lease

A

tenant pays no operating expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

net lease

A

tenant pays property taxes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

net-net lease

A

tenant pays property taxes and insurance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

triple-net lease

A

tenant pays all operating expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

full service lease?

A

under some office leases, landlord required to pay for electricity, water, heat & air, custodial services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

If tenant is responsible for some of, or all, operating expenses, according to lease, how may them pay it

A

pay them directly (typical in single-tenant properties)

reimburse landlord (typical in multi-tenant properties)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

how do reimbursements (to landlord) show up in investment CF?

what about when the landlord paid for it (which then called for reimbursement)?

A

as expense reimbursement revenue

when paid for it, landlord incurs operating expense (at first)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Acceptance of premises

A

Tenants have specific time period (one week?) to notify landlord in writing) of any defects

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Restrictions on alteration or improvements

A

Usually requires prior consent of landlord

–> landlords want to maintain integrity of building’s mechanical, electrical, and structural systems

Landlord may require tenant to restore to original configuration & remove trade fixtures & equipment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Assignment

A

all of tenant’s rights and obligations are transferred to another party

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

sublease

A

only a subset of tenant’s rights are transferred to third party

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Most commercial leases prohibit any assignment & subletting without landlord’s prior consent

true or false

A

true

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Lease Options

A

Contract provisions that give holder (not limited to tenants) the right–but not the obligation–to do something

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

what do tenant options include

A

lease renewal options

cancellation option

expansion options

–> Including right of first refusal on vacant adjacent space

relocation options

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

equivalent level rent (ELR)

A

Step 1: Calculate PV of lease (LPV) after concessions (and other costs)

Step 2: Calculate equivalent monthly annuity

Step 3: Calculate annual ELR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Concession

A

such as move-in allowance or rent reductions for a specified period of time.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

how can administrators learn about features that aren’t immediately enabled?

A

the Feature Management page

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Administrators can use the new Feature Management page to do what?

A

Learn which new features and feature enhancements can be enabled ahead of time in minor updates

Turn individual features on and off again for all users of any environment

Safely try out a feature in a new browser tab without enabling the feature for all users

Plan an approach to testing and preparation in time for upcoming change

–> For example, they can test on a sandbox environment with a copy of production data before they enable a feature in production

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Some facts about the features listed on the Feature Management page include:

A

Only a subset of features releasing in minor updates are available in the page.

Features are primarily platform changes that affect the user experience.

Features are optional for a while, after which they’re permanently enabled in a future service update.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

irreversible features

A

features that can’t be turned off after they have been turned on by an administrator

Typically, they are changes that can’t be safely reverted, or changes that persist or affect data

32
Q

in an Effective Level rent (ELR) calculation, what does the Tenant’s discount rate reflect?

A

reflects only risk of lease in question

33
Q

two main addition risks not accounted for in ELR

A

expected tenancy often longer than current lease term

expected rent pmts beyond existing lease are more risky than pmts within a lease

34
Q

Releasing Costs

A

vacancy period (owner loses revenue)

search costs

–> owner pays leasing commissions

–> both use valuable time

tenant pays moving expenses

owner pays more TI’s (with more lease turnover)

Owner & tenant both negatively affected by releasing costs

35
Q

what can we conclude when Owner & tenant both negatively affected by releasing costs?

A

Both prefer longer lease terms–all else equal

36
Q

factors affecting Flexibility

A

tenant’s uncertainty about future space needs

owner wants to mix tenants in dynamic rental market

owner wants to gain control of space for a renovation

37
Q

what can we conclude abut flexibility?

A

Flexibility considerations suggest shorter term leases are more vlauable to owner and tenant

38
Q

Summary of Effects of Broader Considerations on Preferred Lease Term

A

Owner and Tenant want longer least terms to lower interlease risk

Owner and Tenant want longer least terms to lower releasing costs

Owner and Tenant want shorter least terms to increase flexibility

39
Q

what are the most common office lease terms

A

3 ʹ 7 years with lease renewal options

40
Q

most common office rent properties

A

Rents vary by locations and owners may charge premium rents (for with good views) or give rent discounts (middle floors)

41
Q

office Rentable area

A

gross area - ͞”vertical penetrations”

42
Q

Office Usable area

A

rentable area - common areas (conference rooms, lobbies, etc.)

43
Q

how is office rent generally quoted

A

on rentable area

44
Q

Tenant’s pro rata share of common area calculation

A

tenant’s usable area / total usable area

45
Q

Office Properties: Expense STOP

A

owner is responsible for operating expenses up to a Stop Amount

–> stated as amount per SF of total building rentable space

Per SF expenses beyond stop passed through based on tenant’s pro rata share of building’s rentable area

46
Q

what is the usual term for Industrial and Warehouse Properties

A

10 - 20 years

47
Q

Industrial and Warehouse Properties: features

A

Net, Net-net, or Triple Net Lease are common

Might add Common Area Maintenance (CAM) charge

–> Campus-like development area

–> Landscaping and securities

Improvements are allowed to improve efficiency at the cost of tenant (pre-approval by owner)

48
Q

Retail Properties features

A

A mix of tenants

Success indicators

–> Sales per s.f. of rentable space / customer traffic counts

Term: 3 - 5 years with renewal options

Percentage rents are common

Anchor tenants vs In-line tenants

49
Q

Anchor tenants

A

generating customer traffic, low or no rents

50
Q

In-line tenants

A

benefiting from customer traffic

51
Q

Apartment Properties term

A

relatively short periods (e.g., 12 months)

52
Q

Lease renewal of apartment properties

A
  1. automatically renewed on the same terms unless the landlord has taken steps to change the terms. (Quebec)

Ϯ2. automatically renewed on a “month to month” basis

53
Q

When the landlord changes parts of the lease when it is renewed, a written notice has been sent to the tenant in advance

when should a notice be sent in the case of a fixed term with a lease longer than 12 months?

A

3 to 6 months before the lease ends

54
Q

When the landlord changes parts of the lease when it is renewed, a written notice has been sent to the tenant in advance

when should a notice be sent in the case of a fixed term with a lease shorter than 12 months?

A

1 to 2 months before the lease ends

55
Q

When the landlord changes parts of the lease when it is renewed, a written notice has been sent to the tenant in advance

when should a notice be sent in the case of an intermediate lease?

A

1 to 2 months before the proposed change to the lease

56
Q

When the landlord changes parts of the lease when it is renewed, a written notice has been sent to the tenant in advance

when should a notice be sent in the case of leasing a room

A

10-20 days before the lease ends

57
Q

Real Estate Cycle: Recovery Phase

A

Stage after recession

Vacancy rate: High (declining)

Construction rate: Low or no

Strategy: start to buy

Risks: how long it takes to recover

58
Q

Real Estate Cycle: Expansion Phase

A

Vacancy rate: Low (decreasing)

Construction rate: Increasing (High)

Strategy: invest in value-added investment properties start to harvest discounted properties

59
Q

Real Estate Cycle: Hyper Supply Phase

A

Supply starts to exceed demand

Vacancy rate: Low (start to rise)

Construction rate: High (start to drop)

Strategy: Liquidating inventories (CF shortage). Extend lease terms.

60
Q

Real Estate Cycle: Recession Phase

A

Real estate prices fall dramatically

Vacancy rate: High (increasing)

Construction rate: Plunges (drop dramatically)

Sign of recovery: what point is the lowest point?

Strategy: buy deep-discounted properties, bank-owned properties, and foreclosed properties

61
Q

Name the four general real estate investment styles and describe each

Identify three specialized styles within these general categories and give examples for each.

A
  1. Core
  2. Core plus
  3. Value added
  4. Opportunistic

Under Core:

  • -> Office Properties
  • -> Trophy Properties
  • -> Gateway Markets

Under Core Plus:

  • -> Properties to be re-tenanted
  • -> Properties needing minor capital improvements
  • -> Properties to be leveraged

Under Value Added:

  • -> Properties with excess land to be developed
  • -> Properties to have greater amenities (fitness center, restaurant)
  • -> Properties needing major improvement (eg. parking lot expansion, improving elevators)

Under Opportunistic:

  • -> Raw land development
  • -> Distressed assets
  • -> Loans in default
62
Q

How may supply and demand affect a property’s projected NOI?

A

(1. ) Expected market rents and vacancy rates
(2. ) Expenses associated with operating the property
(3. ) Nature of any leases on the property

63
Q

What factors would result in a property increasing in value over a holding period?

A

rental growth increasing

Inflation: This causes rents as well as the final sale price to be higher.

Demand: Increased demand for space may increase value if the supply of space doesn’t increase as well.

64
Q

Why should investors be concerned about market rents if they are purchasing a property subject
to leases?

A

Even if the investment is an existing building that has already been leased, the income can be affected when the existing leases expire and are renewed at the market rent at the time

65
Q

What is the equity dividend rate?

A

the ratio of a single year’s Before Tax Cash Flow and the Equity Investment in the property

Equity Dividend Rate = Before Tax Cash Flow (BTCF) ÷ Equity Investment

66
Q

What is the significance of a debt coverage ratio?

A

a measurement of a firm’s available cash flow to pay current debt obligations

NOI / Debt service

67
Q

What are depreciation allowances in Real Estate?

A

the process used to deduct the costs of buying and improving a rental property

68
Q

What is meant by a tax shelter?

A

a vehicle used by individuals or organizations to minimize or decrease their taxable incomes and, therefore, tax liabilities

69
Q

How is the gain from the sale of real estate taxed?

A

capital gains

70
Q

What is meant by an effective tax rate?

A

the percent of their income that an individual or a corporation pays in taxes

71
Q

What is the significance of the passive activity loss limitation (PAL) rules for real estate
investors?

A

Passive activity loss rules are a set of IRS rules that prohibit using passive losses to offset earned or ordinary income

Passive activity loss rules prevent investors from using losses incurred from income-producing activities in which they are not materially involved

72
Q

Existing leases:

a. Can be ignored by potential investors when estimating investment value.
b. Must be considered more carefully when valuing a multitenant office building than valuing an apartment complex.
c. Are more important when estimating market value than estimating investment value.
d. Should be assumed to have remaining terms of 10 years when estimating investment value.

A

b. Must be considered more carefully when valuing a multitenant office building than valuing an apartment complex.

73
Q

As a tenant, you wish to turn over all rights and responsibilities of your unexpired lease term to a new tenant. If allowed to do so by the owner, you are:

a. Releasing your leasehold interest.
b. Subleasing your leasehold interest.
c. Assigning your leasehold interest.
d. Relieving your leasehold interest.

A

c. Assigning your leasehold interest.

74
Q

Lease provisions that grant the tenant the right, but not the obligation, to do something generally result in:

a. A lower base rent.
b. A higher base rent.
c. An indexed base rent.
d. Nothing—a base rent is generally not affected by tenant options.

A

b. A higher base rent.

75
Q

Which of the following statements regarding tenant improvements (TIs) is the least true in the context of commercial
real estate leases?

a. TIs are usually stated as a dollar per square foot amount.
b. Tenants can generally negotiate higher TIs for existing space than for space in a newly developed project.
c. Tenants can generally negotiate higher TIs for space in a newly developed project than for space in an existing project.
d. The magnitude of the TIs is often a heavily negotiated lease term.

A

b. Tenants can generally negotiate higher TIs for existing space than for space in a newly developed project.

76
Q

In shopping center leases, rents are typically quoted on the basis of what type of area occupied by the tenant?

a. Gross leasable area.
b. Net leasable area.
c. Rentable area.
d. Usable area.

A

a. Gross leasable area.

77
Q

The typical anchor tenant in a neighborhood shopping center is a:

a. Nationally known department store.
b. Regional department store.
c. “Big box” retailer such as Home Depot and Best Buy.
d. Grocery store.

A

d. Grocery store.

FINA 320 (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions