RECA Commercial Unit2 Exam Questions and Answers 2024

RECA Commercial Unit2 Exam Questions and Answers 2024 Commercial real estate assets have a number of attributes that make them unique relative to other types of investments. These attributes include the following: (x10) -Answer-1. They involve land 2.Transaction time frames are long 3. Transaction costs are high 4. they are expensive 5. They are long lasting 6. Highly regulated 7. have a long production cycle 8. are management intensive 9. are heterogeneous 10. Involve measuring return on investment 1. Long-lasting, Durable Goods 2. Expensive, High-valued (left for well capitalized investors) 3. Transaction Costs: Due diligence and commissions alone comprise about three to five percent of transaction costs. 4. Transaction Time Frame 5. Land 6. Heterogeneous: every parcel of land is unique so every commercial real estate asset is unique. However, improvements are rarely identical as unique site characteristics, land use regulations, and the market often require different solutions from developers. 7. Return Measures 8. Management Intensive 9. Long Production Cycle: it takes time to develop and construct new commercial real estate assets to meet the needs of the expanding population. This results in the real estate supply being relatively slow to respond to changes in demand (i.e. inelastic supply). 10. Highly Regulated Inelastic supply -Answer-there is a limited supply. To illustrate, many cities are geographically constrained and have a Land Use Bylaw that limits the ability to change the use of a parcel of land. This results in a relatively inelastic supply of land for commercial purposes. Inelastic supply means the supply cannot readily adjust to changes in demand or price. four major commercial real estate asset product types according to Real Capital Analytics - Answer-Office: Refers to real estate primarily used for office space Retail: Refers to retail properties, such as strip centres or neighbourhood, community, regional and super-regional shopping malls Industrial: Refers to real estate for industrial use, such as distribution, manufacturing, or warehouse facilities and data centres Apartment: Refers to multi-family rental properties. Other miscellaneous product types include hotels, leisure (e.g golf courses), and special use (e.g. casinos) 3 miscellaneous product types -Answer-hotel, leisure (e.g. golf courses), and special use (e.g. casinos). Categorization by Building Class -Answer-For example, office properties are often categorized as Class A, B, or C. Categorization by Number of Storeys -Answer-For example, apartment properties are classified as either garden complexes (one or more low-rise buildings consisting of four storeys or less) or mid/high-rise projects (one or more buildings consisting of four storeys or greater). Categorization by building's Property Location -Answer-For example, in addition to building class, office properties are often categorized based on their location as either central business district (CBD) or suburban. Categorization by building's Type -Answer-For example, the International Council of Shopping Centres (ICSC) defines different types of shopping centres according to size (gross leasable area and land area), types of tenants, and trade area. The length of time for the Commercial Real Estate Asset Life Cycle process varies considerably depending on a number of factors, including the following: (x5) -Answer-The real estate asset's product type The size and complexity of the project The regulatory environment The need for related infrastructure The financial and operational capability of the investor(s) A typical commercial real estate asset undergoes three phases during its life cycle: -Answer- Phase I: Land Acquisition and Development Phase II: Building Construction Phase III: Operations and Asset Management Phase I: Land Acquisition and Development During Phase I, the developer acquires the land and undertakes the necessary development and pre-construction work. This involves the following: (x3) -Answer-Completing a feasibility analysis Enlisting the professional services of planning specialists, architects, engineers and contractors, and marketing experts Soliciting capital providers (e.g. investors, lenders) True or False - With the exception of a multi-family project, usually some pre-leasing must be in place. -Answer-True - Capital providers often require pre-leasing, which involves obtaining lease commitments in advance of construction. In fact, a construction lender may not commit construction funds until there are leasing commitments for a certain percentage of the space. With the exception of a multi-family project, usually some pre-leasing must be in place. Once lease up of the rest of the asset is complete (i.e. full occupancy), most of the risk associated with the development is eliminated. Four professional organizations that represent both property management and asset management professionals. -Answer-Building Owners and Managers Association (BOMA) Institute of Real Estate Management (IREM) National Council of Real Estate Investment Fiduciaries (NCREIF) Real Property Association of Canada (REALpac) True or False - In the process of operating and maintaining a real estate asset, the property manager is responsible first to the tenant -Answer-False - In the process of operating and maintaining a real estate asset, the property manager is responsible first to the investor and second to the tenants. The property manager is expected to follow the investor's lawful instructions. Asset Management -Answer-The property manager typically reports to the asset manager. Asset management involves maximizing the value of a real estate asset or a portfolio of real estate assets according to the objectives defined by the investor. Different investors have different objectives and maximizing value may only be one of them. The property manager provides the following reporting: monthly (x3) , Annually (x3), for the purpose of (x3) -Answer-Monthly: Accounting Operations Leasing performance Annually: Operating expenses Capital Budget Cash flow For: Fianancial Control Performance measurement Trends detection and pre-emptive actions The Asset manager provides the following reporting: monthly (x3) , Annually (x2), for the purpose of (x2) -Answer-Monthly: Strategic Issues Cash Flow Debt Annually: Budget Long-Term Planning For: Performance Measurement Financial Planning Property Manager must hold a license in order to: (x8) -Answer-Soliciting a property owner to lease their premises Marketing properties for l