Quiz 1 Flashcards
What are the 5 categories of real estate?
- Residential
- Commercial
- Industrial
- Raw Land
- Special Use
What is “The Right of Possession”?
this is “papered” by the “TITLE” - a legal document that shows exactly who the owner of the asset is
What is “The Right of Control”?
the owner of the real estate controls what happens on their property
What is “The Right of Exclusion”?
ownership confers the right to restrict who may come on your property…unless they have a warrant.
What is “The Right of Enjoyment”?
the right to use your property in a legal manner for your personal enjoyment.
What is “The Right of Disposition”?
the right to sell and transfer the title
What is the tax rate for commercial real estate?
40%
What is the tax rate for resedential real estate?
25%
What are the 4 categories of commercial real estate?
- Office
- Retail
- Hospitality
- Medical
How many square feet are in an acre of land?
Acre of land is 43,560 square feet
Remember the “7/11” rule
What is the “FAR” ratio?
Floor Area Ratio:
FAR = GSF (Gross Square Footage)/Total Square
Footage
With a FAR of 2, how much could be built on a 1 acre lot?
FAR of 2 on a 1 acre lot would be calculated
as: (43,560sf) X 2 = 87,120 maximum square footage
allowed.
What are set-back lines?
Set-back lines dictate how many feet from the edge of the property the building envelope can be placed.
What is physical occupancy?
Physical Occupancy is pretty straightforward - how many
of my units (Apartments, Hotels) are occupied at any given time. In commercial assets, we look at how many square feet are occupied.
What is economic occupancy?
Economic occupancy takes into account the actual amount of rent I am actually collecting.
What are “operating costs”?
Operating expenses or “OPEX” are the costs of owning and running a real estate asset.
What is the purpose of the “Pro Forma Capital Budget”?
Identify cash outlay [Pro Forma Capital Budget]
What is the purpose of the “Pro Forma Income Statement”?
Predict timing/magnitude of cash inflows [Pro Forma Income Statement]
What is the “CAP” rate?
Cap Rate (Capitalization Rate) is a key real estate valuation term.
It is the Net Operating Income of the Asset divided by the price of the Asset
R = NOI/P
What are “Hard Costs”?
HARD COSTS represent the total cost of building the
project. Typically, developers break these down into:
• Development costs - (Site Work) the cost to clear the site, grade it, bring utilities in and have it ready to be built
upon.
•Vertical Costs - the “sticks and bricks” or “steel and glass”- what it actually takes to construct the building.
• Contractor Costs - the fee, contingency, and “general
conditions.” General conditions are items like site trailer,
contractor overhead and the like.
What are “Soft Costs”?
SOFT COSTS - this is everything else and covers a gamut of expenses that are incurred to bring a project to life. These will include such items as:
• Architecture and Engineering Fees (A & E) - the cost for a professional to design the project. These include
consultants in architecture, civil engineering, structural
engineering, “MP & E” (mechanical, plumbing and
electrical), landscape architecture, sound attenuation.
• Consultants and Lawyers - Zoning and building
inspection consultants, closing attorneys, deal structure
attorneys, accountants, auditors, bank inspectors.
• Financing Costs - all the costs incurred in securing an
equity partner and a bank loan. These can include
guaranty fees paid to a high net worth individual to
guarantee the loan, preferred interest payments, points
on the loan to close etc.
• “FF &E” - Furniture, Fixtures and Equipment - the plants in the lobby to the pool on the roof, the gym equipment
and the podcast studio soundproofing etc.
• Developer Fees - while these vary depending on the size and local market rate, a good rule of thumb is that the developer will earn around 4% of the total Hard Costs.
How do you calculate NET OPERATING INCOME ?
NET OPERATING INCOME this is equal to the REVENUE minus the OPERATING EXPENSES.
What are the 4 phases of the real estate cycle?
THE FOUR PHASES OF THE REAL ESTATE CYCLE:
PHASE 1 - RECOVERY: Vacancies are declining, rents are
beginning to increase.
PHASE 2 - EXPANSION: New construction begins, rent
increases and vacancy decreases accelerate.
PHASE 3 - HYPER SUPPLY: Rents start to decline, concessions pick up, vacancies tip up.
PHASE 4 - RECESSION: Construction tapers off, rents decline, vacancy goes up.
What is a “Single Net Lease”?
In a “SINGLE NET LEASE,” the tenant pays rent
AND pays for all operating expenses identified in the lease agreement. There are no non-operating expenses passed through to the tenant.
