new york real estate for salespersons, 5 th e
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New York Real Estate for Salespersons, 5 th e. By Marcia Darvin Spada Cengage Learning. Chapter 17. Commercial and Investment Real Estate. Chapter 17 Key Terms. Anchor tenant Capitalization rate Cash flow/before tax cash flow/after tax cash flow Cash on cash return Common Areas. - PowerPoint PPT PresentationTRANSCRIPT
© 2013 All rights reserved. Chapter 17 Commercial and Investment Real Estate 1
New York Real Estate for Salespersons, 5th e
By Marcia Darvin SpadaCengage Learning
© 2013 All rights reserved. Chapter 17 Commercial and Investment Real Estate 2
Chapter 17
Commercial and Investment Real Estate
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Chapter 17 Key Terms
Anchor tenant
Capitalization rate
Cash flow/before tax
cash flow/after tax
cash flow
Cash on cash return
Common Areas
Debt Service
Lease Escalation
Clause
Leverage
Net operating
income/gross income
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Chapter 17 Key Terms (continued)
Pro forma statement
Rate of Return
Tax ShelterTime value of moneyUsable square
footage/rentable square footage
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Rate of Return$ Rate of Return
Percentage of income that
the investor receives
back on an investment
Tom buys an income
property for $175,000.
He sells it 6 mos. later
for $200,000. What is
his percentage of
return?
Investment x percentage of return = dollars in profit
$175,000 X ___ = $25,000Factor missing: divide and
convert decimal to percentage
$25,000 ÷ $175,000 = _____
Answer: 7% (rounded for 6 mos; 14% (rounded) for the yearChapter 17 Commercial and Investment
Real Estate 5
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Investment AnalysisTime value of
money
Holdings periodplanning
LeverageAvailablefinancing
Proforma schedule
Chapter 17 Commercial and Investment Real Estate 6
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Characteristics of Real Estate Investments
Risk
Rate ofReturn
LiquidityLeverage
Debt to Equal Ratio
And Leveraging
Chapter 17 Commercial and Investment Real Estate 7
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Types of Investment Properties
IndustrialProperties
Retail Centers
Mixed UsedBuildings
ResidentialBuildings
Office Buildings
Unimproved Land
TYPES
Chapter 17 Commercial and Investment Real Estate 8
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Property Analysis and Terminology Cash World: Deriving the
Net Operating IncomeGross income is
received without deducting expenses
The result of deducting operating expenses is net operating income
Mortgage principal and interest payments are called debt service
Cash World: Deriving the Before-Tax Cash FlowMeasured before
taxes are considered
Formula for Equity Dividend Rate: Cash-on-Cash Return
Annual before-tax cash flow/Total Cash invested=Cash-on-cash return
Chapter 17 Commercial and Investment Real Estate 9
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Cash Flow
Cash flow
Net proceeds after
all expenses are
met
either before or
after taxes
Income = $500,000
Expenses =
$300,000
Cash flow (net
return) = $200,000
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Tax WorldFormula for
deriving the income tax:
Total Property Income
-Deductions, allowable credits and exemptions
=Taxable income
Value overview by income capitalizationCapitalization
formula:
Value x capitalizations
rate=annual net income
Chapter 17 Commercial and Investment Real Estate 11
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Analysis of Income, Rate, and Value (IRV)
I = IncomeR = RateV = Value or
Sales Price
I ÷ R = V
R x V + I
I ÷ V = RI
R V
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Commercial LeasingBuilding amenities
Type of lease
Lease duration
On-site management
Chapter 17 Commercial and Investment Real Estate
13
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Commercial LeasesSquare Footage
Usable square footage- area contained within the space that the tenant occupies
Rentable Square FootageSquare footage of
the total area
Loss and Add-On Factors
Common Areas
Chapter 17 Commercial and Investment Real Estate 14
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Concerns of Commercial Tenants
LocationLocationLocationLocation
Building designBuilding designBuilding designBuilding design
Effective rentEffective rentEffective rentEffective rent
Chapter 17 Commercial and Investment Real Estate 15
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Lease Clauses
Subordination, nondisturbance and attornment agreement
Estoppel certificateUse clauseType of leaseBuilding amenitiesOn-site managementThe tenant mix In the buildingLease duration
Chapter 17 Commercial and Investment Real Estate 16
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Commercial LeasesIndex lease
Percentage lease
Gross Net lease (triple-
net) lease
Graduated lease
Commercial leases generally include lease escalation clauses
Chapter 17 Commercial and Investment Real Estate 17
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Discounted Investment PropertyForeclosed property-property sold at
auction by lender
Short sale-lender allows property to be sold at a loss
Other distressed property-properties in depressed areas or in disrepair
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Purpose of Lease Escalation Clause
Fixed percentage
increase-indexedescalation
Porter’swage
escalationformula
Direct operating
cost
Real propertytax clause
Operating stop/Tax
stop clause
Base year
Proportionateshares of
occupancy
Purpose
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Marketing Investment Properties Capital
improvement budget Cash flow analysis
and projection Engineering review Feasibility study Income and expense
analysis Lease review
Legal review and compliance verification
Marketing analysis and/or appraisal
Review of existing and proposed financing
Title history
Chapter 17 Commercial and Investment Real Estate 20