CHP 55 - Lease Analysis

Question 1

Major commercial leases

Answer 1

gross
net
percentage
ground
sublease
assignment
turnkey
build-to-suit
sale-leaseback

Question 2

Gross lease

Answer 2

Office and industrial - most apartment leases.

Question 3

Net LEase

Answer 3

Office and industrial. Tenant pays rent + some operating expenses

Question 4

Percentage Lease

Answer 4

Retail - rent based on percentage of gross sales

Question 5

Ground Lease

Answer 5

Long term net lease on land alone.

Tenant owns improvements

Question 6

Assignment

Answer 6

Tenant transfers all interest in leased property to another party

Question 7

Turnkey

Answer 7

Landlord turns premesis over in a ready-to-use ocndition

Question 8

Build to Suit

Answer 8

Landlord develops property to tenants needs - Increased rent

Question 9

Core clauses of Lease

Answer 9

Preamble
Premises
Lease Term
Rent
Security Deposit
Rules and Regulations
Use
Default

Question 10

Basic components found in the preamble

Answer 10

Parties
Date of lease execution
legal address
statement of desire to enter into lease
Agreement to abide by convenents

Question 11

“additional rent” clause

Answer 11

FOcuses on tenant’s obligations for covering operational expenses

Question 12

The insurance clause of a commercial lease requires

Answer 12

The tenant’s policies to cover landlord, lender and maintenence personnel

Question 13

Premesis Clause

Answer 13

The configuration and quantity of area to be leased

Question 14

Rule and Regulations Clause

Answer 14

Landlord is not liable for rule infractions committed by other tenants

Question 15

Service and utilities clause….

Answer 15

Landlord promises to provide sufficient janitorial services at specific times

Question 16

Waiver of subrogation….

Answer 16

Parties agree not to sue each other for certain types of damages

Question 17

As is clause….

Answer 17

Protects landlord against claims that certain imprvements were not completed or delivered

Question 18

Turnkey Lease

Answer 18

Tenant’s improvements have already been completed

Question 19

Lease Term clause establishes these 2 things

Answer 19

Occupancy period & How the ten ant improvement construction affects intitial day of payable rent

Question 20

The tenant’s security deposit

Answer 20

May be in the form of a letter of credit if approved by the landlord

Question 21

Income after all expenses are deducted from gross receipts

Answer 21

Net Operating Income NOI

Question 22

Market rent is also known as

Answer 22

Economic rent

Question 23

Retail market rent factors

Answer 23

• demographic
• median income
• % of income famililes spend on goods

Question 24

Market rent for office building factors

Answer 24

• how many similar firms
• Liklihood of more firms relocating
• # of employees
• Amount of space needed

Question 25

Kinds of expenses with income properties

Answer 25

Variable | Fixed

Question 26

Variable Expenses

Answer 26

Fluctuate according to occupancy

Question 27

Variable Expense Examples

Answer 27

Management Fees Utilities CLeaning

Question 28

Fixed Expense Examples

Answer 28

Real Estate Taxes Insurance Premiums Repairs and Maintenance Ads and Promo

Question 29

Calculating NOI

Answer 29

Potential Income - Vacancy/Collection losses = Effective Income Effective Income - Operating Expenses = NOI

Question 30

Cash Flow Before Tax

Answer 30

Cash received after the net operating income has been calculated and any mortgage-related expenses BUT BEFORE taxes

Question 31

Annual Debt Service

Answer 31

annual amount of principal and interest paid to a lender

Question 32

CFBT | Cash Flow Before Taxes =

Answer 32

NOI - Annual Debt Service

Question 33

Tax Liability

Answer 33

Net operating income - allowable deductions including depreciation and mortgage interest Based on taxable incoem rather than cash flow

Question 34

Depreciation is also known as

Answer 34

Cost Recovery

Question 35

Cash Flow After Tax =

Answer 35

BTCA - Tax Liability

Question 36

What does an Account Income Statement Show

Answer 36

revenues when earned and expenses when incurred

Question 37

What does a real estate operating statement show

Answer 37

cash flows from operations and non-operating cash flows

Question 38

Non-Operating Cash Flows

Answer 38

Debt service Income Taxes Capital Expenditures

Question 39

Gross (rental) Leasing Income

Answer 39

Revenue that would generate if there were no vacancies

Question 40

Effective Rental Income

Answer 40

Gross leasing income - losses from vancancy or uncollected rent =

Question 41

NOI - Debt Service =

Answer 41

Cash Flow Before Tax

Question 42

The amount of cash that remains after operating expenses, obligations to the lender and income taxes paid

Answer 42

Cash Flow After Tax

Question 43

Cash on Cash return is AKA

Answer 43

Equity dividend rate

Question 44

Cash on Cash return =

Answer 44

Cash Flow Before Tax / Total Cash Invested

Question 45

ROI =

Answer 45

NOI/Price

Question 46

ROE =

Answer 46

CFAT/Equity

Question 47

Break Even Ratio

Answer 47

The percentage of gross income required to meet cash expenditures

Question 48

Det Coverage Ratio measures...

Answer 48

investors ability to pay property's mortgage from the cash generated from rental

Question 49

Income Approach AKA

Answer 49

Income capitalziation Approach

Question 50

Capitalization Rate

Answer 50

the recapture rate of original investment over the economic life of investment

Question 51

Cap rate influenced by...

Answer 51

Operating conditions, prevailing interest rates & risk

Question 52

Value =

Answer 52

Income/ (Cap) Rate

Question 53

What does Cap rate measure

Answer 53

Risk involved in an investment

Question 54

Higher Risk =

Answer 54

Higher Cap Rate

Question 55

Value goes up as cap rate goes

Answer 55

Down

Question 56

Cap Rate =

Answer 56

NOI/Value or Price

Question 57

Pre-Tax cash flow vs. Net income

Answer 57

PTCF accoutns for a property's financing

Question 58

In an annual operating statement debt service is

Answer 58

Subtracted from net income to derive pre-tax cash flow

Question 59

What identified what an investor actually yields from the investment

Answer 59

After tax cash flow

Question 60

The operating expense ratio indicates...

Answer 60

How profitable the property is

Question 61

An investor requires a given return on existing property would....

Answer 61

Identify the required price in view of its existing net operating income