12 - Commercial Property

What is the gross operating income for a company that has a gross rent income of $102,500, vacancies worth $4,500, extra income of $3,000 and operating expenses of $16,700?

$101,000.00

Which of the following information would NOT be found in a typical lease agreement?

A copy of the warranty deed

What document assigns rights, duties and responsibilities between a tenant and an owner?

A lease

A free rent period is an example of which of the following?

A lease concession

Which of these factors does not affect net operating income?

Amenities

What is the initial rent that a tenant pays under a lease contract and is usually a precise dollar amount?

Base Rent

What ratio measures the investor's ability to pay the property's monthly mortgage payments from the cash generated from renting the property?

Debt coverage

Under what agreement does the owner pay all of the operating expenses and the tenant has no responsibility for these expenses?

Gross Lease

Which type of lease requires the owner/investor to bear all of the risk?

Gross Lease

Which of the following would not be considered a residential property?

Hotel

All of the following factors will affect the market rent of an apartment except which one?

How likely it is that shopping will locate to the area

Which property would most probably have the longest lease term?

Industrial property

Which of the following is considered a fixed operating expense?

Insurance premiums

What is a net lease?

It is a lease where the tenants pay for some or all of the expenses of a property.

Why does a step-up rent provision offer less risk for tenants than an indexed rent provision?

It provides specifics on when and how much rent will increase.

Why is underwriting the lease a critical aspect of risk assessment?

It ultimately affects the cash flow produced by a property.

Typically, when evaluating a lease proposal, the owner does NOT consider the following information?

Lease release data

A Which of the following is not a variable expense:

Make ready repairs and maintenance

Once an investor has estimated the market rent for property, its vacancy rate, and operating expenses, he or she can calculate what is known as:

Net operating income

Which method of rent is partially based on the tenant's sales volume?

Percentage rent

What option gives the tenant the right at the end of the lease term to renew the lease at the current market rate, before it's offered to other tenants?

Right of First Refusal

Which of these is not typically considered when evaluating a tenant and a lease proposal:

Size of customer mailing list

What kind of lease includes a provision that spells out how the rent will increase periodically and gives the specific amounts and specific dates of those increases?

Step-up

Which method of rent includes a provision that spells out how the rent will increase periodically by specific amounts at specific times?

Step-up rent

When a current tenant leaves, the owner needs time to make the space ready for new tenants. This interval is referred to as:

The holding period

Which of the following is considered a variable expense?

Utilities

Which of the following is not a fixed expense:

Utilities

John has a lease provision that allows an increase in rent when a specified leading economic indicator increases over a period of six months. This type of lease is tied to

a market index.

Owner Norm rents out office space on the lower level and residential apartments on the upper level of his building. Norm is said to own

a mixed-use development.

If a tenant defaults on a lease due to a business failure, a bankruptcy proceeding

could result in any number of decisions granted by the bankruptcy judge.

Physical durability is a calculation of the building's remaining physical life, which is based on

how well the building was originally designed coupled with how well it has been maintained over its life.

Functional efficiency

is an assessment of how well a property does the job it is supposed to do.

Which types of industrial spaces are usually less expensive to rent?

is an assessment of how well a property does the job it is supposed to do.

Warehouse owner Norm pays for all utility expenses up to $500. The tenant pays for any overage. What the tenant pays is called

pass-through expenses

The net operating income is

the difference between the gross operating income and the operating expenses.

Operating ratio is defined as

the percentage of effective gross income that is consumed by the operating expenses.