RECA COMMERCIAL UNIT 2 (ACTUAL 2025)
LATEST UPDATE 2
Real Estate Investment Trust (REIT) - <<<Answqers>>>A
real estate investment trust (REIT) is a private or public
organization that invests predominantly in commercial real
estate assets through either direct ownership or mortgage
investments. The concept had initially been introduced in the
United States in 1960 to provide investors with the
opportunity to participate in different sectors of the real estate
market indirectly by owning shares in an entity that owned a
significant portfolio of real estate assets. REITs have existed
in Canada for over 20 years, with the first Canadian REIT
formed in 1993 when a real estate mutual fund converted to a
closed-end mutual fund trust.
True or false - In addition to carefully reviewing the lease
agreements, real estate professionals representing buyers in
commercial real estate trades should ensure they request the
seller provide an Estoppel Certificate for each tenant. -
<<<Answqers>>>True - An Estoppel Certificate confirms the
current details of the lease and financial status of the tenant as
of the date on the certificate. Although the form and content
of an Estoppel Certificate is dictated in the lease agreement, it
will typically include the following information:
The commencement and expiration dates of the original lease
and extensions or renewals that have occurred
The basic rent amount
The area of the premises
Any financial or other obligations that remain on behalf of the
current landlord to the tenant (e.g. TI allowance, rent
abatement)
, RECA COMMERCIAL UNIT 2 (ACTUAL 2025)
LATEST UPDATE 2
The payments (e.g. rent, additional rent) that the tenant has
made
Any pending or current litigation between the tenant and the
current landlord
The seller, their real estate professional, or their legal expert
typically completes the Estoppel Certificate as prescribed in
the lease agreement and then has the tenant sign it. Upon
receiving the Estoppel Certificate(s), the buyer's real estate
professional should provide them to their client for review.
An operating budget - <<<Answqers>>>An operating budget
consists of all revenues and expenses over a period of time
(typically a quarter or a year) and is used to plan an asset's
operations. An operating budget is prepared in advance as a
goal the asset is expected to achieve. Financial statements are
a formal record of the current financial activities and
condition of an asset. They are useful for determining the
ability of the asset to generate income and the sources and
uses of that income.
Market Analysis - <<<Answqers>>>A market analysis is a
study of the supply of and demand for a real estate asset
and/or its space in a geographically-defined area to determine
attributes of products in the market as well as current or
expected prices or rents. Often the analysis includes an
investigation of how a particular real estate asset could be
absorbed, sold, or leased under current or anticipated market
, RECA COMMERCIAL UNIT 2 (ACTUAL 2025)
LATEST UPDATE 2
conditions. It also identifies trends and events that could have
implications for the asset's value.
The following elements are essential for a pro forma
statement for the purposes of an Unleveraged DCF analysis:
(x4) - <<<Answqers>>>Initial investment: The initial
investment is the purchase price of the real estate asset plus
any costs incurred to acquire it, such as due diligence and
legal costs. Due diligence costs may include fees for
environmental site assessments, building condition
assessments, and appraisals, as well as commissions for the
real estate professionals facilitating the transaction. In other
words, the initial investment is the total monetary outlay
required to obtain the real estate asset.
Reversionary value: Reversionary value is the estimated value
of the asset at the end of the holding period when disposition
occurs. In other words, it is the expected sale price for the
asset, less disposition costs such as legal costs and
commissions for the real estate professionals facilitating the
transaction. In other words, it is the total monetary outlay
required to sell the real estate asset.
Holding period
Annual cash flows
, RECA COMMERCIAL UNIT 2 (ACTUAL 2025)
LATEST UPDATE 2
An escalation rate - <<<Answqers>>>An escalation rate is a
pre-specified increase in the rent or operating expenses during
the term of the lease. The market usually determines the rate
of escalation allowed. The escalation rate is typically based on
the following:
Annual Consumer Price Index (CPI) or other index for rent or
operating expenses
Flat with escalations of specified amounts at future dates for
rent
Flat with escalations to market rates at future dates for rent
Market Discount Rate - <<<Answqers>>>The market
discount rate is a measure of investment performance over a
holding period that accounts for risk and return on capital.
Therefore, the market discount rate is the sum of the
following three components:
Discount rate = Risk Free Rate of return + Risk Premium +
Constant Growth rate
The risk free rate of return - <<<Answqers>>>The risk free
rate of return is what you would expect from an investment
that has no risk of default. Government backed securities are
LATEST UPDATE 2
Real Estate Investment Trust (REIT) - <<<Answqers>>>A
real estate investment trust (REIT) is a private or public
organization that invests predominantly in commercial real
estate assets through either direct ownership or mortgage
investments. The concept had initially been introduced in the
United States in 1960 to provide investors with the
opportunity to participate in different sectors of the real estate
market indirectly by owning shares in an entity that owned a
significant portfolio of real estate assets. REITs have existed
in Canada for over 20 years, with the first Canadian REIT
formed in 1993 when a real estate mutual fund converted to a
closed-end mutual fund trust.
True or false - In addition to carefully reviewing the lease
agreements, real estate professionals representing buyers in
commercial real estate trades should ensure they request the
seller provide an Estoppel Certificate for each tenant. -
<<<Answqers>>>True - An Estoppel Certificate confirms the
current details of the lease and financial status of the tenant as
of the date on the certificate. Although the form and content
of an Estoppel Certificate is dictated in the lease agreement, it
will typically include the following information:
The commencement and expiration dates of the original lease
and extensions or renewals that have occurred
The basic rent amount
The area of the premises
Any financial or other obligations that remain on behalf of the
current landlord to the tenant (e.g. TI allowance, rent
abatement)
, RECA COMMERCIAL UNIT 2 (ACTUAL 2025)
LATEST UPDATE 2
The payments (e.g. rent, additional rent) that the tenant has
made
Any pending or current litigation between the tenant and the
current landlord
The seller, their real estate professional, or their legal expert
typically completes the Estoppel Certificate as prescribed in
the lease agreement and then has the tenant sign it. Upon
receiving the Estoppel Certificate(s), the buyer's real estate
professional should provide them to their client for review.
An operating budget - <<<Answqers>>>An operating budget
consists of all revenues and expenses over a period of time
(typically a quarter or a year) and is used to plan an asset's
operations. An operating budget is prepared in advance as a
goal the asset is expected to achieve. Financial statements are
a formal record of the current financial activities and
condition of an asset. They are useful for determining the
ability of the asset to generate income and the sources and
uses of that income.
Market Analysis - <<<Answqers>>>A market analysis is a
study of the supply of and demand for a real estate asset
and/or its space in a geographically-defined area to determine
attributes of products in the market as well as current or
expected prices or rents. Often the analysis includes an
investigation of how a particular real estate asset could be
absorbed, sold, or leased under current or anticipated market
, RECA COMMERCIAL UNIT 2 (ACTUAL 2025)
LATEST UPDATE 2
conditions. It also identifies trends and events that could have
implications for the asset's value.
The following elements are essential for a pro forma
statement for the purposes of an Unleveraged DCF analysis:
(x4) - <<<Answqers>>>Initial investment: The initial
investment is the purchase price of the real estate asset plus
any costs incurred to acquire it, such as due diligence and
legal costs. Due diligence costs may include fees for
environmental site assessments, building condition
assessments, and appraisals, as well as commissions for the
real estate professionals facilitating the transaction. In other
words, the initial investment is the total monetary outlay
required to obtain the real estate asset.
Reversionary value: Reversionary value is the estimated value
of the asset at the end of the holding period when disposition
occurs. In other words, it is the expected sale price for the
asset, less disposition costs such as legal costs and
commissions for the real estate professionals facilitating the
transaction. In other words, it is the total monetary outlay
required to sell the real estate asset.
Holding period
Annual cash flows
, RECA COMMERCIAL UNIT 2 (ACTUAL 2025)
LATEST UPDATE 2
An escalation rate - <<<Answqers>>>An escalation rate is a
pre-specified increase in the rent or operating expenses during
the term of the lease. The market usually determines the rate
of escalation allowed. The escalation rate is typically based on
the following:
Annual Consumer Price Index (CPI) or other index for rent or
operating expenses
Flat with escalations of specified amounts at future dates for
rent
Flat with escalations to market rates at future dates for rent
Market Discount Rate - <<<Answqers>>>The market
discount rate is a measure of investment performance over a
holding period that accounts for risk and return on capital.
Therefore, the market discount rate is the sum of the
following three components:
Discount rate = Risk Free Rate of return + Risk Premium +
Constant Growth rate
The risk free rate of return - <<<Answqers>>>The risk free
rate of return is what you would expect from an investment
that has no risk of default. Government backed securities are
