Real Estate & Finance Terminology

N Lease

Tenant pays property tax

NN Lease

Tenant pays property tax and building insurance

NNN Lease

Tenant pays property tax, building insurance, and common area maintenance (CAM)

What are the major commercial real estate asset classes?

• Office

• Retail

• Industrial

• Multifamily

• Hotels

Net Operating Income (NOI) Equation

NOI = Rents - Expenses

Real Estate Profit Equation

Profit = Net Sales - Development Cost

For-Rent Valuation Formula

Value = NOI/Cap Rate

For-Sale Valuation Formula

Value = Market Price

Specialized CRE Asset Classes

• Single-family rentals

• Data Centers

• Life Science

• Self Storage

• Senior Housing

• Student Housing

Key players in CRE

• Developers

• Operators/Owners

• Equity Investors

• Lenders

• Brokers

• Property Managers

Risk and Investment Strategies

• Core Investments: Minimal risk, prime locations, stable income

• Core-Plus Investments: Minimal to moderate risk, steady income with appreciation

• Value-Add Investments: Moderate risk, properties needing improvements

• Opportunistic Investments: Highest risk and potential return, major repositioning

Why invest in CRE?

• Strong Returns

• Stability

• Diversification

• Inflation Protection

Why not to invest in CRE?

Illiquidity

Transaction costs

Expertise barriers

Management intensity

Information asymmetry

Space Market Supply Factors

• Zoning and land use regulations

• Construction costs

• Land availability

• Financing and interest rates

• Market expectations and developer sentiment

• Construction time lags

• Macroeconomic conditions

• Environmental and sustainability regulations

Major Demand Drivers

• Economic conditions

• Business activity and industry trends

• Technological change

• Demographics and urbanization

• Consumer behavior

• Government policy and incentives