Commercial real estate
Bart sells his strip mall property on Oak street to Marty. Marty asks the six current tenants to sign an __________ certificate to ensure that they will pay their contractual rent to Marty. A. attornment B. estoppel C. novation D. preemption
B
Leonard just signed a double net lease with landlord Jenny for a small, free standing office. He said he's paying for insurance coverage on the building as well as all interior and exterior maintenance. What is Jenny paying for? A. landscaping B. property tax C. utilities D. waste removal
B
Lump sum is A. fixed dollar amount for specific services B. percentage calculated on the aggregate lease term C. dollar amount set based on amount of space leased D. fees paid by tenant for finding space
B
Which would be a consideration for prospective owners of industrial properties as opposed to retail or residential investment properties. A. comparable sales B. means of distribution C. nearby competition D. vacancy rates
B
attornment is A. a method of disposing of leased space B. the act in which tenants acknowledge their obligations to a new landlord C. places an existing lease in an order junior to a new mortgage on leased property D. may be inserted to restrict the use of leased space
B
the load factor is calculated A. as a percentage of gross sales B. by dividing rentable square footage by usable square footage C. based on a standard index D. on all real estate commissions owed
B
Rentable Square feet
the ''usable'' square feet plus a pro-rata portion of the common areas shared among all of the tenants such as corridors, lobbies, and restrooms. This is the number typically used for calculating base rent. also called gross square feet
overage rent
the amount above the base rent that a tenant owes according to the terms of a percentage lease. also called a percentage rent
pro-rata share
the equitable distribution of expenses among tenants for the operating expenses of a building, generally based on the percentage of the property occupied by the tenant
tax depreciation
the expensing of the cost of business or investment property over a set number of years
base rent is
the minimum amount of rent indicated in a lease
Class A office building
the most desirable and new buildings in a particular market with the best design, superior construction and amenities, and features. These properties attract the highest quality tenants
topography
the physical characteristics of a parcel of land including water sources, native vegetation, location of trees and rocks, soil type, and floodplains
load factor
the ratio of rentable square footage to usable square footage. also called add on factor
usable square feet
the space actually available and useable for a tenant's personnel, furniture, and equipment. The actual floor space inside the exterior walls of leased premises. Space the tenant can physically use inclusive of interior walls and columns. also called Net square feet
Porter's wage escalation formula
ties the rent escalation to the wages of the building's cleaning and building maintenance personal (called porters). The formula provides tenants rent will increase a specific amount per square foot for a specified increase in the porters hourly wage
an amenity purchaser is interested in a property's investment return as well as its ability to fulfill a specific business need. true or false
true.
what is the formula for rentable square footage
usable square footage x load factor = rentable square footage
Mr. McNally has a parcel of land that is 300 feet x 120 feet and where the floor are ratio required for the site is 20%. What is the maximum building size permitted on this site? A. 1800 sq feet B. 6000 sq feet C. 7200 sq feet D. 9000 sq feet
C. to calculate the maximum size of building for the site, you take the total square footage of the parcel, which is 36,000 (300 x 120 = 36,000) and multiply it by the 20% floor area ratio (36,000 x 0.20 = 7,200)
hourly fee
Compensation arrangement where licensees are paid based on an advanced payment agreement or retainer or a fee based on hours worked. In these situations, the retainer or hourly fee is usually paid even when transactions do not close.
A doctor is looking for office space to lease for her pediatric practice. she hires a real estate licensee to locate the perfect space, paying the licensee a ________ fee for his services. A. assignment B. attornment C. estoppel D. procurement
D
Bonnie's Balloons rents retail space from ARC Inc. Bonnie pays ARC $600 each month in rent in addition to 12% of her balloon shop's gross sales. What kind of lease is this? A. gross lease B. index lease C. net lease D. percentage lease
D
Frank rents warehouse space. In addition to the rent he pays the landlord. Frank pays the property taxes and insurance. He is also responsible for maintenance of the building. What type of lease does Frank have? A. graduated lease B. gross lease C. ground lease D. net lease
D
The type of property that would have the greatest risk of being 100% vacant is A. mixed use property B. multi family residential property C. office property D. single family residential property
D
Use is A. a method of disposing of leased space B. the act in which tenants acknowledge their obligations to a new landlord C. places an existing lease in an order junior to a new mortgage on leased property D. may be inserted to restrict the use of leased space
D
What is a novation? A. an amendment to a contract B. an assignment of a contract C. an assumption of a contract D. a new contract
D
What would help ensure that two tenants in the same strip mall aren't competing against each other with the same merchandise? A. attornment clause B. escalation clause C. estoppel certificate D. use clause
D
Which method of rent escalation ties the increase to the wages of a building's maintenance personnel? A. arbitrary breakpoint B. consumer price index C. expense ceiling calculation D. porter's wage escalation formula
D
Which statement is FALSE regarding how commercial real estate listings differ from residential listings? A. commercial forms must clearly indicate the type of property and type of transfer of interest to be marketed, whether for sale or lease. B. commercial listings are usually for a longer period of time C. commercial listing forms are often custom documents D. commercial listings typically sell more quickly than residential listings
D
a triple net lease refers to all of these expenses EXCEPT A. common area maintenance B. insurance C. taxes D. utilities
D
an investor concerned with the topography of a location is most likely considering an investment in A. industrial property B. office property C. retail property D. undeveloped land
D
procurement fee is A. fixed dollar amount for specific services B. percentage calculated on the aggregate lease term C. dollar amount set based on amount of space leased D. fees paid by tenant for finding space
D
some investors may prefer a single family residential investment property because of A. fewer available comparable properties B. larger return on investment for the owner C. less risk of vacancy/loss D. smaller management requirements
D
topography is an important consideration for A. office property B. retail property C. residential property D. unimproved land
D
As with all commission agreements, the commission paid for procuring leases is based on the A. agreed upon rates established between local brokers B. fixed rate established by the local national Association of Realtors C. guidelines established by the ohio real estate commission D. schedule and arrangement between the participating parties
D.
Which lease would likely have the lowest base rent A. gross B. net C. net net D. net net net
D. because it requires the tenant to pay more of the cost of ownership separate from the rent
Net square footage refers to A. common space B. rental space C. shared space D. usable space
D. net square footage refers to the space between the walls, the usable space
Lydia wants to move her clothing boutique to the east side. She has licensees Renee working for her to help her find the perfect location to relocate the boutique, and she has agreed to pay Renee a fixed fee. This fee is best described as an A. attainment fee B. discovery fee C. finder's fee D. procurement fee
D. procurement fees paid by a tenant to an agent are often fixed fees but can also be percentage based
Oliver has a percentage lease where he pays an annual base rent of $42,000 plus a 6% overage percentage. What is the natural breakpoint on this lease? A. $252,000 B. $534,240 C. $583,333 D. $700,000
D. to find the natural breakpoint, you divide the annual base rent by the agreed upon overage percentage. (42,000 / 0.06 = 700,000)
Commercial Property is
Property zoned and used for business purposes, such as warehouses, restaurants, and office buildings
Aggregate Rent is
The total rent for the full term of the lease
sublease
When a tenant transfers only part of his or her right of possession or other interest in leased property to another person for part of the remaining lease term.
early termination clause
a clause, term, or condition in a contract that allows a party to that contract to avoid having to perform the contract. also called Escape Clause
subordination clause
a contract clause that gives a mortgage recorded at a later date the right to take priority over an earlier recorded mortgage or existing lease
Assumption Agreement
a contract stipulating that a buyer of commercial property takes ownership subject to existing commission obligations under the terms of a lease.
Lease purchase
a contract where a tenant pays rent for temporary possession but is obligated to complete the purchase at some point in the future
estoppel cerfificate
a document often used in real estate and mortgage activities, that establishes certain facts that may later not be contradicted, disputed, or recanted
Coworking space
a flexible office environment where an independent customer can use a specific desk or a desk on first come, first served basis in a shared services office building, usually for short term or temporary intervals
net lease
a lease for which tenants pay all taxes, insurance, etc... plus utilities and rent
gross lease
a lease for which the tenant pays a fixed amount to the landlord and the landlord is responsible for paying all expenses
triple net lease
a lease in which the tenant pays all the expenses associated with the property in addition to rent. also called net net net
percentage lease
a lease under which a tenant pays a percentage of gross sales in addition to rent.
Land lease is
a lease under which the tenant leases only the land from the owner, but the tenant owns the building. also called ground lease
Estoppel is
a legal doctrine that prevents a person from asserting rights or facts inconsistent with earlier actions or statements
sale and leaseback
a method for financing commercial or industrial properties in which a company constructs the building, and then becomes a tenant by selling the building to an investor
base year is
a period for determining a property's actual operating expenses, typically over the first year of a lease terms that is used at the point of reference against which increases in subsequent years are compared and then passed on to the tenant
Amenity Purchaser is
a person who values a property based on its ability to fulfill his specific business needs, unlike investors who value a property based primarily on its investment return.
Cross easement
a reciprocal easement created by contract whereby owners of two adjoining properties make provisions for use, common maintenance
right of first offer
a right to have the first chance to buy or lease property if the owner decides to sell or lease it
Attornment is an
act in which tenants acknowledge their obligations to a new landlord
what is another name for load factor
add on factor is another name
pass through is an
additional operating cost that is passed from a property owner to a tenant, such as when property taxes go up
common area maintenance (CAM)
all costs incurred in maintaining the common areas of a commercial property including parking lot sweeping and repair, snow removal, common utilities, landscaping, and other maintenance tasks. CAM costs are usually prorated among all tenants
what is another name for an escalation clause
an escalator
Class B office building
an excellent building, just not the best around; it is usually older and or less modern in its architecture or may have lost status since a new class A office space opened nearby. These properties attract "not quite" Class A tenants
consumer price index (CPI)
an index published monthly by the United States Bureau of Labor Standards considered by many to be the basic indicator of inflation in the U.S.
Possessory interest
an interest in property that entitles the holder to possess and occupy the property, now or in the future; an estate, which may be either a freehold or leasehold
leasehold estate
an interest that gives the holder, the tenant, a temporary right to exclusive possession of the estate, without title
magnet store is also called
anchor tenant
Tenants interested in Class C office space are typically A. high profile B. image conscious C. price driven D. risk takers
c
fixed fee
commission agreement by which a fixed dollar amount is paid for the performance of specific real estate services; payment usually requires the successful completion of the transaction
graduated percentage
commission payment in which the compensation percentages are set on a graduated scale
fixed percentage
commission payment that is determined by multiplying the agreed upon percentage by the actual sale price of the property
procurement fee
compensation arrangement typically paid to a licensee by a tenant representative or finding space for the tenant. procurement fees are often fixed fees but could be percentage based
what is another name for an early termination clause
escape clause is another name
A single family home would never be considered commercial real estate. true or false
false. if the single family home was used as an investment, it could be considered commercial property
Rent is typically calculated based on the net square footage true or false
false. rent is calculated based on the rentable square footage
Class D office buildings
functionally obsolete buildings that need extensive renovations or major repairs. These properties are prime candidates for rehabilitation projects or teardown.
what is another name for a land lease
ground lease is another name
unimproved land
land that does not have the basic physical improvement and or services necessary for development, such as electricity, water, sewer, street access, etc. also called raw land
escalation clause is a
lease clause that provides for an increase in rent to reflect increases in expenses paid by the landlord, such as real estate taxes, operating costs, and cost of living expenses. also called escalator
index lease is a
lease in which the amount of the rent is tied to some common index indicator such as the Consumer Price Index or the Wholesale Price Index. As the agreed upon index increases, the rent goes up by the same percentage of change
graduated lease is a
lease that specifies step by step rent increases, generally paid at set intervals
Anchor tenant is
major department or chain store strategically located at shopping centers to give maximum exposure to smaller satellite stores. a center may have several anchor tenants. Also called Magnet Store
floor area ratio
maximum size of a building permitted on a development site according to zoning requirements. The floor area ratio is typically stated as a percentage such as 25%, 30%
Class C office buildings
may consist of two types; older buildings, still functionally viable, but not as favorably located as Class B office buildings and new buildings constructed to be highly functional. Class C buildings may be found in what are now considered secondary locations and attract secondary market tenants who are price driven
novation is the
release of liability of the original borrower on a note or debt, and the substitution of a subsequent borrower with the lender's approval
what is the formula to determine the load factor
rentable square footage / useable square footage = load factor
What is the formula to calculate rent by square footage
rentable square footage x cost per square foot = annual rent
broker lien law
state statutes that allow commercial brokers to file a lien against real property for the payment of earned commission
A property that houses a research and development facility is typically categorized as A. industrial property B. mixed use property C. office property D. retail property
A
An advantage of having an anchor tenant is that it A. may attract customers to smaller stores B. may force smaller stores out of business C. may provide common area maintenance for other tenants D. will usually stand on its own
A
Margaret rents an apartment from Marty. Margaret pays rent and some of her utilities. Marty pays insurance on the building property, taxes, and maintenance. What kind of lease is this? A. gross lease B. index lease C. net lease D. percentage lease
A
Smallville builds a new sewage treatment plant and raises water rates to pay for it. If Clark's rent is subsequently raised, his lease most likely A. contains an escalation clause B. is a graduated lease C. is an index lease D. is a percentage lease
A
Which statement about commercial real estate is TRUE? A. commercial and residential real estate share the same basic provision for the contract and property law. B. commercial transactions are usually less complicated than residential transactions C. in most states, a special license is required to sell commercial real estate D. single family residential properties are never considered commercial property
A
Which statement about the square footage of commercial property is FALSE? A. net square feet is typically used to calculate base rent B. Rentable square feet is the same thing as gross square feet C. space shared among tenants in a building is rentable square feet D. usable square feet is the actual space inside the walls of leased premises
A
Which would be the MOST LIKELY example of a class A tenant? A. architectural firm B. credit card processing office C. real estate appraisal office D. telemarketing office
A
With which lease are most costs of ownership reflected in the bae rent charged to the tenant? A. gross B. net C. percentage D. triple net
A
an advantage for businesses to do a sale and leaseback is to A. free up liquid assets to invest in other product or resources B. increase the number and the variety of assets tied into real estate C. leverage other people's money D. qualify for more government assistance
A
assignment is A. a method of disposing of leased space B. the act in which tenants acknowledge their obligations to a new landlord C. places an existing lease in an order junior to a new mortgage on leased property D. may be inserted to restrict the use of leased space
A
right of first refusal
A right to have the first chance to buy or lease a property if the owner decides to sell or lease it. also called a right of preemption
Assignment is
A transfer of the terms of a contract from one party to another, for example, when a tenant transfers his or her right of possession, or other interest in leased property, to another person for the entire remainder of the lease term
lifestyle center
A type of mixed-use development project that incorporates retail, office, residential, and entertainment/leisure amenities; generally geared toward upscale consumers and typically oriented for pedestrians
Lucy has two years left on a lease, but her business is losing money every month. Which option for disposing of the space might you recommend? select all that apply A. assign the lease to another vendor B. buy out the remainder of the lease C. close down the operation D. sublease the space
A,B,C and D
Flat fee is A. fixed dollar amount for specific services B. percentage calculated on the aggregate lease term C. dollar amount set based on amount of space leased D. fees paid by tenant for finding space
A.
Vicky signs a four year lease on a condo in University City when her son Frank starts college. Frank quit school after his sophmore year, so Vicky transfers the remining two years of the lease to her niece, Lucy, also a student at the college. Lucy sends her rent checks directly to the landlord. This is an example of A. assignment B. novation C. sublease D. surrender
A. an assignment is when one lessee transfers interest in lease property to another party for the remainder of the lease term
Environmental issues would be of greatest concern in A. industrial property B. office property C. retail property D. single family property
A. environmental issues are of greatest concern with industrial properties
Which type of commercial real estate investor is more likely to occupy or use the investment property? A. industrial B. office C. residential D. retail
A. investors in industrial properties tend to occupy or use the property because of the specialized nature of the businesses involved
An office building has 180,000 square feet of rentable space and 165,000 square feet of usable space. What is the load factor for this building? A. 1.09 B. 1.91 C. 19 D. 19.1
A. the load factor is found by dividing the rentable square footage by the usable square footage. 180,000/165,000 = 1.09
Which is a TRUE statement describing the Consumer Price Index (CPI)? select all that apply A. CPI calculations exist only for the U.S. as a whole - regional calculations are not published. B. the CPI can help landlords and tenants gain the maximum advantage and protection while limiting potential downsides. C. The CPI is an index published monthly by the U.S. Department of Treasury D. Landlords of office and commercial properties will typically negotiate annual increase in rent based on the CPI. E. Rent increase/decrease based on the CPI help ensure rent paid retains its purchasing power.
B, D and E
Which would MOST LIKELY be an example of a typical Class C tenant? A. architectural design firm B. bank processing center C. insurance headquarters D. law firm
B.
Margie's Candle Shop is not doing well at the EastSide mall location. Margie wants to close that store buy still has a lease. Which is NOT an option for her? A. assignment B. attornment C. buyout D. sublease
B. attornment means that a client acknowledges her obligation to a new landlord
Listing broker Rich sells a small strip mall for $700,000. He had negotiated a 6% commission. He offered 3% to the cooperating broker. How much will Rich keep? A. $11,600 B. $21,000 C. $23,300 D. $42,000
B. rich is keeping only 3% of the commission, so his commission is $21,000 ($700,000 x 0.03 = $21,000)
GEM Inc. is the largest of 10 tenants in a 10,000 square foot office building. GEM pays $15 for each of its 2,000 square feet plus a pro-rata share of the $10,000 annual maintenance. What is GEM's annual rent? A. $31,000 B. $32,000 C. $40,000 D. $42,000
B. the base rent is $30,000 ($15 x 2,000 square feet = $30,000). GEM has 20% of the office space (2,000 sq ft / 10,000 sq. ft. = 0.20) and so should pay that percentage of the annual maintenance ($10,000 maintenance x 0.20 = $2,000) GEM's annual rent is $30,000 + $2,000 or $32,000
A graduated lease typically bases rent increases on A. actual operating expenses B. indexing methods that vary according to the rate of inflation C. a predetermined negotiated percentage D. property tax increases
C
Carrie includes a right of first refusal in her lease with landlord Luke. At what point would Carrie get the opportunity to purchase the property? A. as soon as Luke decides to put it up for sale B. when Luke dies C. when Luke gets a bona fide offer from another prospective buyer D. within one year of signing the lease
C
In a sale and leaseback arrangement the A. buyer gets possession of the property B. buyer receives equitable title only C. seller retains possession of the property D. seller retains title to the property
C
Maxine owns a duplex home near a college campus. The house has four bedrooms, which she rents out to college students. This is an example of A. business complex B. mixed use property C. multi family residential property D. single family residential property
C
Per Square Foot Fee is A. fixed dollar amount for specific services B. percentage calculated on the aggregate lease term C. dollar amount set based on amount of space leased D. fees paid by tenant for finding space
C
Which statement about broker lien laws is FALSE? A. broker lien laws are passed by individual states B. broker lien laws generally allow a broker to foreclose on property for nonpayment of commission C. Broker lien laws typically apply to both commercial and residential real estate D. broker lien laws usually require a broker to record a notice of intent to file a lien
C
Which statement is TRUE regarding commercial properties? A. commercial property is seldom leased because there are no tax advantages to it B. commercial property transactions require a special real estate license C. investment property and commercial property can be the same thing D. residential property could not be considered commercial property
C
Which type of of business would typically occupy an industrial property? A. doctor's office B. food service C. manufacturing D. nursing home
C
a landlord substitutes tenant a with tenant b for the remaining term of the lease, relieving tenant a of any liability. This is an example of A. assignment B. defeasance C. novation D. sublease
C
a percentage lease is most typically associated with A. industrial property B. multi family property C. retail property D. single family property
C
subordination is A. a method of disposing of leased space B. the act in which tenants acknowledge their obligations to a new landlord C. places an existing lease in an order junior to a new mortgage on leased property D. may be inserted to restrict the use of leased space
C
which is MOST LIKELY to be an example of atypical Class A tenant? A. check processing operation B. distribution center C. law firm D. software call center
C
Barb's lease obligates her to pay utilities, CAM, and insurance. Her landlord picks up the property tax bill. What kind of lease does she most likely have? A. gross B. net C. net net D. net net net
C.
A tenant rents 6,000 square feet of usable space in a warehouse with a load factor of 1.12 and a rent of $2.80 per square foot per month. What is the tenant's monthly rent for this space? A. $14,784 B. $16,800 C. $18,816 D. $20,160
C. first find the rentable square footage; 6,000 USF x 1.12 = 6,720 RSF. Next simply multiply the rentable square footage by the cost per square foot. 6,720 RSF x $2.80 = $18,816 in rent every month
Oliver has a percentage lease where he pays an annual base rent of $42,000 plus a 6% overage percentage. This year, Oliver had $720,000 in gross sales. What is his total rent? A. $42,000 B. $42,210 C. $43,200 D. $44,520
C. he had to pay 6% overage percentage on the $20,000 he earned over the breakpoint ( 20,000 x 0.06 = $1,200) adding that $1,200 to the $42,000 base rent equals $43,200
Landlord Lucy signs a lease with Tenant Tom. After a month, Tom is transferred out of state. Lucy substitutes the name of Tom's friend Dave on the lease for the remainder of the term, relieving Tom of liability. This is an example of A. assignment B. defeasance C. novation D. sublease
C. the substitution of a new contract, with the withdrawing party relieved of liability, is novation