Notes on commercial and investment properties for NYS Real Estate exam
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Office Building Classes
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Class A
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newer
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Class B
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Class C
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lowest condition
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low-rise
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1-3 stories
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mid-rise
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3-15 stories
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high-rise
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>=20 stories
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Retail Property Types
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strip centers
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8000-30000 ft2
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neighborhood centers
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30,000-100,000 ft2
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outlet centers
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100,000-300,000 ft2
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NOI
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equal to the gross income minus expenses (and sometimes debt service)
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Time Value of Money (TVM)
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the idea that money available at present time is worth more than the same amount in the future data due to its potential earning capacity
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leverage
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the use of borrowed capital (mortgage) to increase the potential return of an investment
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cash on cash return
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a percentage return on money invested in a property by an investor
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gross income
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the total amt collected from rents & other income producing opportunities
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debt service
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annual amt to be paid by a debtor on an obligation to repay borrowed money
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tax shelter
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any method of reducing taxable income resulting in a reduction of the payments to tax collecting entities
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before tax cash flow
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the net profit/loss calculated by subtracting expenses from income before taxes are paid
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after tax cash flow
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the net profit/loss realized after taxes are deducted
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rate of return
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a profit on an investment over a period of time, expressed as a proportion of the original investment
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rentable square footage
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usable area that can be leased/rented to a tenant
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commencement date
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contracted date when activities begin
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move-in date
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the date at which the tenant will move in
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estoppel
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an instrument executed by the mortgagor setting forth the present status and the balance due on the mortgage as of the date of the execution
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lease escalation clause
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a contract provision allowing for one to pass an increase in costs to another party
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Pro-Forma statement
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an accounting statement that forecasts income and expenses for a period of time, typically 5 or more years
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1.
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Gross potential income
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2.
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effective gross income
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3.
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expenses
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4.
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net operating income (NOI)
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5.
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before tax cash flow
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Subordination
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tenant subordinates lease to mortgage
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Non-Disturbance
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protects tenants from being thrown out of the property
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Attornment Agreement
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tenant commitment to allow for ownership to change
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How will the use of positive leverage benefit a real estate investor?
it will allow him to purchase a larger building
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How is a multi-family property valued different than an office building?
both properties are valued the same way
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What is considered a primary commercial property type?
industrial properties
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What is the term for usable area that can be leased/rented to a tenant?
rentable square footage
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What is the pricing on residential real estate based in part on?
emotion
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What is an important aspect of industrial warehouse space?
ceiling heights
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The amount of cash flow a property produces is used to determine the value of what property type?
commercial
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In addition to the cash needed for the down payment, what do you also need to run and maintain the property?
liquidity
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If an owner has enough cash to fund the operations of a commercial investment property while the cash flow becomes stabilized, what is he considered?
liquid
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What is a common management fee to assume for a large multi-family building?
5%
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What type is largest in area?
rentable square footage
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In which type of lease does the tenant pay a fixed amt in rent, while landlord pays for building expenses?
gross lease
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Town Brokers have recently signed a lease to occupy an entire office building. What type of lease did Town Brokers most likely sign?
NNN lease
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In a typical commercial lease, who is given the option to extend a tenant's lease?
tenant
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How can a utility bill be passed through to the tenant if sub-metering proves unfeasible?
rent inclusion
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A non-recurring expense is considered what?
capital expenditure
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What are mortgage payments made up of?
principal & interest
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What do lenders typically have a buyer place in an escrow account?
capital reserves
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What is an underlying component of a cap rate?
risk, sweat equity, cash
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Which property is risky as an investment?
duplex apartment house
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