Study Guide Midterm

Question 1

What is improvement ON the land?

Answer 1

Includes any fixed structures such as buildings, fences, walls, and decks.

Question 2

What is improvement TO the land?

Answer 2

Include the components necessary to make the land suitable for building construction or other uses: streets, walkways, stormwater drainage systems, electric, telephone utilities

Question 3

What is a tangible asset?

Answer 3

Include real and personal property: land, buildings

Question 4

What is an intangible asset?

Answer 4

nonphysical; contractual rights, financial claims, interests, patents, or trademarks. e.g. bonds, mortgages, lease agreements

Question 5

What are the three different sectors in the economy that real estate values are derived from?

Answer 5

User markets, Capital markets, and Property markets.

Question 6

What are examples of a real estate asset that trades in the public or private markets?

Answer 6

Investible assets?

Question 7

What is economic base?

Answer 7

Activities that bring income into the city

Question 8

What is economic multiplier?

Answer 8

As the base goes up, so does the city. Base income is re-spent, producing additional income

Question 9

What are secondary activities?

Answer 9

Activities that recirculate income in a city (local government, local merchants and services)

Question 10

What are convenience goods?

Answer 10

A product or service that is easily accessible and frequently purchased by consumers with minimal effort (e.g. nail salons, hair salons, drug stores, coffee shops, etc.)

Question 11

What are comparison goods?

Answer 11

Buyers compare many goods; motivation for car dealer row-> shop around before buying

Question 12

What are some factors that impact the growth of a city?

Answer 12

Transportation, Production, Technology,

Question 13

What are externalities general?

Answer 13

a ‘side effect’ of commercial activity that impacts other parties

Question 14

What are negative externalities?

Answer 14

Adverse effect on Property Value…
- Factory smoke
- Light ‘pollution’
- Traffic/congestion

Question 15

What are positive externalities?

Answer 15

Beneficial effect on Property Value…
- Parks
- Schools
- Architecture

Question 16

Why is it important to analyze development and its effect on surrounding areas?

Answer 16

market failure, we build this city

Question 17

What are examples of land use controls?

Answer 17

building codes, zoning, subdivision regulations

Question 18

What are traditional features of zoning?

Answer 18

• Use classifications:
  Residential, commercial, industrial, automotive.
• Use districts (zoning map).
• Setback requirements.
  Side, front and back.
• “Bulk” or density limits.
  Minimum lot size, height limits, maximum floor area ratios.
• Special use districts:
  Service stations, hospitals, churches, private schools, cemeteries.

Question 19

What is eminent domain?

Answer 19

The right of the government to acquire private property, without the owner’s consent, for public use, in exchange for just compensation

Question 20

What is the importance of the elements of a lease?

Answer 20

is a prerequisite to understanding CRE markets and values.

Question 21

What are the the advantages and disadvantages of varying lease terms?

Answer 21

All else equal, longer lease terms:
- Minimize transaction costs (leasing commissions-> usually landlord covers it) have to pay a broker to find a tenant
- Provide rental rate security for tenant & owner
- Decrease tenant & owner flexibility (if the market is going up and down it benefits the tenant and landlord accordingly)

Question 22

What are the different lease types as it pertains to the tenant’s coverage of expenses?

Answer 22

• Gross lease: landlord pays all expenses
• Net lease: landlord pays property taxes
• Net-Net Lease: landlord pays Property Taxes and Insurance
• Triple Net Lease: tenant pays all operating expenses

Question 23

What is a tenant improvement allowance?

Answer 23

• The amount the landlord agrees to spend to build out the space to meet the needs of the new tenant’s business
• More common in Retail, Office, Industrial than Hotels and Apartments
• The magnitude of TI is heavily negotiated lease term.

Question 24

What is a concession?

Answer 24

• Supply in local market exceeds demand
• The landlord is more willing to negotiate
  Can include one or more of the following:
• Free month’s rent
• Reduced rent for a period
• Landlord covers moving expenses
• Cost to terminate a prior lease.

Question 25

What is a sublease?

Answer 25

Only a subset of tenant’s rights are transferred to another party

Question 26

What is an expense stop?

Answer 26

Owner responsible up to a ‘stop’ amount and then passed on to tenant based on stop amount and pro rata share of rentable area.

Question 27

What is a co-tenancy clause?

Answer 27

• In a new shopping center, tenant allowed to pay only percentage rent, decreased rents, or cancel if one or more anchor tenants does not open for business
  “opening” co-tenancy
• Existing shopping center, tenant allowed to pay only percentage rent, decreased rents or cancel if one or more anchor tenants ceases to operate
  “on-going” co-tenancy

Question 28

Be able to calculate monthly rent when there is a lease provision adding percentage rent.

Answer 28

.

Question 29

What are locational factors?

Answer 29

Jobs
Population
Quality of infrastructure
Location
Vintage (Building age)
Interest Rate
Homes on Market
State of economy

Question 30

What are nonlocational factors?

Answer 30

• Housing: style, floorplan, size; financing available
• Retail: tenant mix; parking facilities, visibility (can I see it); store dimensions (bay depth)
• Offices: visibility, design, floor plate size (how divisible the floor is) ; amenities and services; electrical and communications service

Question 31

What is market segmentation and market parameters?

Answer 31

• Differences in preferences or needs among market subgroups
• Dividing and grouping users into subgroups based on:
  Common needs
  Interests
  Wants
  Motivations.

Question 32

What is the story approaches focus as compared to conventional market analysis?

Answer 32

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