Real Estate Quiz 1

Absolute Net Lease

tenant pays all expenses, similar to Triple Net Lease plus structural maintenance and repairs

Accrued Depreciation

difference between reproduction or replacement cost of improvements and the market value of improvements on the effective date of an appraisal

Acquisition

adding space to a portfolio, begins life cycle of property ex: leasing, purchasing, or building the space

Adjusted Basis

The beginning basis, or cost, of a property plus the costs of capital improvements, minus all depreciation expense.

Agreement of Sale

contract of purchase, purchase agreement, or sales agreement, contract between seller an buyer with specific terms and conditions set by both parties

Asking Rental Rate

quoted rental rate, face rate, asking rate, rate per square foot or meter for a particular space

Available Space

total space available for lease or sale in a given time period

Balance sheet

key financial statement of company, describes assets, liabilities, equity of a company at a point in time

Base Year

comparison year, calendar or fiscal year defined within a lease, used for calculations and comparisons

Capitalization (Cap) Rate

a ratio used to estimate the value of income-producing properties Cap Rate\= Net Operating Income/ Market Value

Cash Flow

net measure of the inflow and outflow of cash, positive cash flow does not mean profit

Common Area

Non-rental areas of a property that the landlord owns intended for use by all tenants and invitees ex: restrooms, elevators, foyers

Common Area Maintenance (CAM) Expenses

Portion of operating expenses incurred by the landlord to maintain common areas

Comparative Method

market method, appraisal method which bases the value of the subject property on the price of similar properties that have sold recently

Cost Approach

summation approach, determines the value of a property by adding the market value of the land to the cost of replacing the existing building long definition- look at sheet for details

Cost of Capital

The rate of return that must be earned on new investments having the same average risk as the firm's existing assets to provide all investors with fair market rates of return

Debt Coverage Ratio (DCR)

debt service coverage ratio, ratio of net operating income to annual debt service

Deferred Maintenance

Physical deterioration that has not been addressed but can be corrected, immediate need

Depreciation Expense

periodic cost of owning depreciable assets, accounts for wear and tear

Direct Expenses

portion of operating expenses relating directly to tenant's leased space

Discount Rate

interest rate used to convert future payments or receipts into present value

Discounted Cash Flow (DCF) Analysis

performed either lease-by-lease or aggregate basis to a set of projected income streams, can be applied with many yield capitalization techniques

Easement

limited right of use of another's land by a landowner for the benefit of the land

EBITDA

Earnings before interest, taxes, depreciation, and amortization

Economic Development

process or efforts to improve the economic well-being and quality of life

Eminent Domain

Right of the government to take private property for public use upon payment of just compensation

Encumbrance

A judgement, mortgage, lien, or any other claim registered against the title to property

Equity

Difference between a property's current market value or purchase price and the current debt incurred to purchase the property

Escalation Clause

expense recovery clause, provision in a lease that provides for periodic adjustment of rent based on some index or event

Excess Land

land that does not serve or support the existing improvement, land not needed for primary use

Feasibility Analysis

cost-benefit study of relationships involved in an economic endeavor

Floor Area Ratio (FAR)

land-to-building ratio or plot ratio

Furniture, Fixtures, and Equipment (FF&E)

movable property that frequently wears out more than other components

Future Value

value at a future point in time, time value of money

Government Incentives

can influence location decisions, ex: free land, tax rebates, assistance can be provided

Gross Building Area (GBA)

total floor area of a building including basement space an excluding non-inclosed areas

Gross Leasable Area (GLA)

Total floor area designed for occupancy and exclusive use of tenants, measured from the center

Gross Lease

full service lease, landlord receives rent an discloses the cost of and pays for operating expenses and taxes

Hazard Insurance

protection for damage caused to a property by fire, windstorms, and other hazards, doesn't typically include floods

Highest and Best Use (HABU)

appraisal process to determine the use of the property that products the highest value for the land as if its vacant --\> longer definition look at packet

Improvements

any buildings, additions and enhancements to increase the value of a property

Income Approach

income capitalization approach, value derived for an income-producing property by direct capitalization of expected income --\> long definition

Income Statement

a key financial statement, profit and loss statement, describes revenues and expenses over time

Insurable Value

value of assets or real property covered by an insurance policy

Insurance

coverage for property to cover loss or damage to the property caused by events like fire, vandalism, terrorism etc.

Internal Rate of Return (IRR)

discount rate that results in an investment having a present value equal to zero

Investment Duration

measure of capital at risk, the longer the duration the more capital at risk

Investment Value

the value of the property to a particular investor

Lease

instrument for granting exclusive possession of a property to another for a specified term, usually for rent

Lessee

tenant

Lessor

landlord

Lien

charge or claim by one party on the property of another as security for the payment of a debt

Listing Agent

The agent representing the seller

Market Analysis

study of market conditions for a specific type of property or service

Market Rent

used for appraisal purposes, rental income a property would be expected to command in an open market

Market Value

open market value or fair value, most probable price at which an asset would trade in a competitive setting

Debt Service Coverage

divide either combined NOI or EBITDA by sum of interest expense and amortization or mortgage loans

Fixed Charge Coverage

divide either combined NOI or EBITDA by the sum of interest, dividends on preferred shares, distributions on preferred units

Combined NOI and EBITDA as a Percentage of Combined Real Estate Revenues

measures divide either NOI or EBITDA by total real estate revenues

General and Administrative Expenses as a Percentage of EBITDA or Combined Real Estate Revenues

divide general and administrative expenses by the applicable measure

Recurring Capital Expenditures as a Percentage of Combined NOI

divides recurring capital expenditures by NOI

Mortgage

legal document from buyer to lender pledging property as security for payment of a loan or lien

Mortgage Note

written agreement to pay a loan, secured by a mortgage as proof

Net Cash Flow

net operating income minus capital expenditures

Net Operating Income (NOI)

company's operating income, calculated before interest and taxes are deducted, positive value

Net Operating Loss (NOL)

company's net operating loss, calculated before interest and taxes are deducted, negative value

Net Present Value (NPV)

based on cash flow the asset generates for a specific owner under a specific use, compare to value-in-use

Net Rentable Area (NRA)

area on which the rent is computed

Net Sales Proceeds

proceeds from the sale of an asset or part of an asset, less brokerage commissions, closing costs, legal and marketing expenses

Occupied Space

space occupied by tenant, subtenant, or owner

Offer

proposal to purchase property at a specified price and terms

Operating Expenses

recurring expenses required for operations and maintenance of a property

Payback Period

the length of time required to recover the project's initial investment

Potential Gross Income (PGI)

The total income attributable to real property at full occupancy before vacancy and operating expenses are deducted

Pre-leased Space

Space leased prior to construction completion or certificate of occupancy date

Prepayment

payment of mortgage loan, or part of a loan, prior to the due date

Present Value (PV)

discounted value in today's dollars, how much a future amount of money is worth today

Property Manager

responsible for the care and maintenance of premises

Property Tax

enforced charge by state and local government imposed on individuals, property ,and income to support public services such as schools

Purchase Price

price including all amounts paid to a seller less adjustments made at closing

Qualified Buyer

buyer who demonstrates financial ability to afford the asking price of a property

Real Estate Investment Trust (REIT)

an ownership conduit entity which collectively invests in real estate and avoids corporate taxation on distributed income

Real Estate Taxes

property taxes, based on value as determined by taxing authority

Recurring Capital Expenditures

capital improvements and other costs not considered prior to acquisition of the property

Refinance

obtain a new loan or to pay off an existing loan, usually done when interest rates have decreased

Replacement Cost

estimated cost to construct at current prices a building with equivalent utility

Reproduction Cost

estimated cost to construct at current prices an EXACT duplicate or replica of a building using the same materials, layout, workmanship

Restrictive Covenants

restrictions on the use of real property created by deed and tied to the property

Sales Comparison Approach

based on the principle of substitution- a prudent individual will pay no more for a property than it would cost to purchase a comparable substitute property

Sale Leaseback

a change of ownership where the owner will sell the building to a real estate investor and then lease back the building for a long period

Scope of Work (SOW)

description of the amount and type of work to be completed by a service provider in a specific assignment

Service Level Agreement

a contract between a service provider and a client that defines the level of service expected

Site Selection

location decision, organization determines where to locate a facility

Land Survey

map or plot of land with elevations, improvements, boundaries and relationship to surrounding tracks of land, survey assures property is aligned with legal description

Management Survey

studies a property and factors that affect it, includes things like the market, neighborhood, property, economics of alternatives

Taxes and Insurance

real estate taxes and property taxes and property/casualty coverage

Tenant Expenses

includes operating expenses, taxes, insurance

Tenant Improvements (TI)

new, fixed, remodeling and associated improvements paid by landlord and defined in the lease

Tenant Representative

specializes in negotiating for tenants, not affiliated with leasing agent

Time Value of Money

time is money, the value of the money you have now is not the same as it will be in the future and vice versa