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Commercial and Investment Properties Cheat Sheet by

Notes on commercial and investment properties for NYS Real Estate exam

Investment Property Types

Office Building Classes
Class A
newer
 
Class B
 
Class C
lowest condition
 
low-rise
1-3 stories
 
mid-rise
3-15 stories
 
high-rise
>=20 stories
Retail Property Types
strip centers
8000-30000 ft2
 
neighb­orhood centers
30,000-100,000 ft2
 
outlet centers
100,000-300,000 ft2
Office Building Classes are based on GAAP

Key Termin­ology

NOI
equal to the gross income minus expenses (and sometimes debt service)
Time Value of Money (TVM)
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
leverage
the use of borrowed capital (mortgage) to increase the potential return of an investment
cash on cash return
a percentage return on money invested in a property by an investor
gross income
the total amt collected from rents & other income producing opport­unities
debt service
annual amt to be paid by a debtor on an obligation to repay borrowed money
tax shelter
any method of reducing taxable income resulting in a reduction of the payments to tax collecting entities
before tax cash flow
the net profit­/loss calculated by subtra­cting expenses from income before taxes are paid
after tax cash flow
the net profit­/loss realized after taxes are deducted
rate of return
a profit on an investment over a period of time, expressed as a proportion of the original investment
rentable square footage
usable area that can be leased­/rented to a tenant
 

Lease Clause for Tenants

commencement date
contracted date when activities begin
move-in date
the date at which the tenant will move in
estoppel
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
lease escalation clause
a contract provision allowing for one to pass an increase in costs to another party

Pro Forma Statements

Pro-Forma statement
an accounting statement that forecasts income and expenses for a period of time, typically 5 or more years
1.
Gross potential income
2.
effective gross income
3.
expenses
4.
net operating income (NOI)
5.
before tax cash flow
Typically used by investors to estimate their rate of return for a particular property
-It often takes longer to find a new tenant for commercial building than a reside­ntial building
-Lenders will typically require the buyer to have capital reserves placed in an escrow account

SNDA

Su­bor­din­ation
tenant subord­inates lease to mortgage
Non-Disturbance
protects tenants from being thrown out of the property
At­tor­nment Agreement
tenant commitment to allow for ownership to change
 

Missed­/Unsure Questions

How will the use of positive leverage benefit a real estate investor?
it will allow him to purchase a larger building
How is a multi-­family property valued different than an office building?
both properties are valued the same way
What is considered a primary commercial property type?
industrial properties
What is the term for usable area that can be leased­/rented to a tenant?
rentable square footage
What is the pricing on reside­ntial real estate based in part on?
emotion
What is an important aspect of industrial warehouse space?
ceiling heights
The amount of cash flow a property produces is used to determine the value of what property type?
commercial
In addition to the cash needed for the down payment, what do you also need to run and maintain the property?
liquidity
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
What is a common management fee to assume for a large multi-­family building?
5%
What type is largest in area?
rentable square footage
In which type of lease does the tenant pay a fixed amt in rent, while landlord pays for building expenses?
gross lease
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
In a typical commercial lease, who is given the option to extend a tenant's lease?
tenant
How can a utility bill be passed through to the tenant if sub-me­tering proves unfeas­ible?
rent inclusion
A non-re­curring expense is considered what?
capital expend­iture
What are mortgage payments made up of?
principal & interest
What do lenders typically have a buyer place in an escrow account?
capital reserves
What is an underlying component of a cap rate?
risk, sweat equity, cash
Which property is risky as an invest­ment?
duplex apartment house
       
 

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