Commercial Real Estate Basics Flashcards

Commercial Real Estate Basics Flashcards What are 2 main ways to profit off CRE?1. rental income2. capital gains (appreciation above purchase price) What term best describes a rate of return that calculates the cash income earned on the cash invested in the property?Cash on Cash Return -lock in prices in rising market environment-attractive to tenants since commercial space is limited Discuss the cons of long-term leases.What term best describes to indicate the rate of return that is expected to be generated on a real estate investment property?Capitalization Rate (Cap Rate) What are the 4 main classes of commercial real estate?1. office space2. industrial3. multi-family rentals4. retail What term best describes a duration of time set out in the lease that designates the minimum amount of time you're expected to remain in the same rental unit?Lease Term What are the 3 most common obstacles CRE investment firms face when leasing out a space?

• Regulations2. Vacancy3. Tenant Turnover

Which CRE term uses the following formula?Annual Before

• Tax Cash Flow / Total Cash Invested

Cash on Cash Return What type of lease is the tenant responsible for paying rent & the landlord pays for the building's property taxes, insurance, and maintenance?Gross Lease What term best describes net operating income is a calculation used to analyze the profitability of income-generating real estate investments?NOI (Net Operating Income)

Which CRE term uses the following formula?FORMULA:

Mortgage Amount / Appraised Property Value Loan-To-Value Ratio (LTV) How long do commercial leases usually run? 1-10 years (office/retail avg between 5-10 yrs) Is it more common for businesses to own or lease the buildings they occupy?

Lease: more flexible

What term best describes a metric that looks at a property's income compared to its debt obligations. Properties with a ratio of more than 1 are considered profitable, while those with a DRC of less than 1 are losing money?Debt Coverage Ratio (DCR) What term best describes an assessment of lending risk that financial institutions and other lenders examine before approving a mortgage; loan assessments with higher LTV ratios are higher risk loans?Loan-to-value ratio (LTV Ratio) How does less demand for commercial spaces (bc working from home is becoming more and more popular) affect the investor and lender moving forward?Discuss the pros of long-term leases.

What type of lease is the tenant responsible for paying property taxes, insurance, and maintenance?Triple-net (NNN) lease Which CRE term uses the following formula?Net Operating Income / Debt Service Debt Coverage Ratio (DCR) What are the 4 primary types of commercial property leases?

• Single-net lease2. Double-net (NN) lease3. Triple-net

(NNN) lease4. Gross lease What type of lease is the tenant responsible for paying property taxes and insurance?Double-net (NN) lease Which CRE term uses the following formula?Net Operating Income / Current Market Value Capitalization Rate (Cap Rate) What term best describes the cost of borrowing money and is usually stated as a yearly percentage that is paid as a part of your monthly loan payment?Interest Rate What term best describes a quasi-governmental entity established to enhance the flow of credit to specific sectors of the American economy?Government Sponsored Enterprise (GSE's) What type of lease is the tenant responsible for paying property taxes?Single-net lease What term best describes an accounting technique used to periodically lower the book value of a loan or intangible asset over a set period of time?Ammortization Which CRE term uses the following formula?Real Estate Revenue - Operating Expenses Net Operating Income (NOI) How long will it take for the commercial real estate industry to bounce back from the effects ofthe COVID-19 pandemic?If this 'work from home' buzz materializes in a big way what would that mean for the demand for commercial space?What term best describes a property that is used exclusively for business-related purposes or to provide a workspace rather than as a living space - like retail and office space, hotels & resorts, strip malls, restaurants, and healthcare facilities.Commercial Real Estate (CRE)