Real Estate 306 Exam 3 Questions and Answers Graded A+
which existing leases must be considered more carefully when valuing? - Answers multi tenant office
building existing leases must be considered more carefully than apartment complexes.
what interest does owner (lessor)have? - Answers leased fee interest
what interest does the tenant (lesee) have? - Answers leasehold interest
essential elements of a lease? - Answers must be competent parties, legal use, provide something of
value.
-name of lessor and lessee.
-adequate description of premises
- conveyance of premises
-starting time and length of arrangement and agreed rental rates.
use of the premises: - Answers commercial property leases usually contain a clause that indicates how
the property can be used
longer lease terms (reliability CF vs. Flexibility) - Answers shorter term if you think lease rates will change
or want to change tenant mix.
restrictions on alterations or improvements to property - Answers usually require prior consent of
landlord, who owns the fixtures at end of leases?
rental payments for longer leases - Answers flat rent, graduated rent, indexed lease (CPI).
overage (percentage) rent - Answers tenant pays a rent based in part on the rates of the tenant's
business
Overage (Percentage) Rent - Answers ♣ In many retail leases, total rent is equal to base rent +
overage/% rent
(Base rent = $96,000 per year or $8,000 per month, 5% of gross sales charged as percentage rent, sales
threshold/breakpoint = $160,000 per month, store produces $200,000 in gross sales in a month.
Total rent = Base Rent + Overage Rent
Total rent = $8,000 + .05($200,000-$160,000) = $10,000)
, Negotiated Lease Provisions Often Include: - Answers ♣Use of the Premises
- commercial property leases usually contain a clause that indicates how the property can be used.
♣Longer Lease Terms (Reliable CF vs. Flexibility)
- shorter if think lease rates will change or want to change tenant mix
♣Responsibility for maintenance of Space
♣Restrictions on alteration or improvements to property
- Usually require prior consent of landlord, who owns the fixtures at end of lease?
♣Any Restrictions on operation of tenant's business
- Common in Retail
gross lease - Answers tenant pays no Operating expenses
net lease - Answers tenant pays property taxes
net net lease - Answers tenant pays property taxes and insurance
triple net lease - Answers tenant pays all operating expenses
Expense stops (common in office leases) - Answers ¬Owner responsible for OPEX up to specified (stop)
amount per sf of total rentable space in building.
¬Different tenants may have different $/sf stop amounts
Lease Options: Give tenant ability to do something without commitment - Answers ¬Contract provisions
that give holder the right-but not the obligation- to do something
¬Options may include:
♣Lease renewal, cancellation option, expansion options, relocation options
More options= higher base rents
Class A office property and leases - Answers highest grade.
-highest rents because of prestige in tenancy, location, and overall desirability.
-usually newer structures and typically owned by institutional investors.
class B office properties and leases - Answers rents usually less than class A because of a less desirable
location; fewer amenities, less impressive features, no elevator, ect.
which existing leases must be considered more carefully when valuing? - Answers multi tenant office
building existing leases must be considered more carefully than apartment complexes.
what interest does owner (lessor)have? - Answers leased fee interest
what interest does the tenant (lesee) have? - Answers leasehold interest
essential elements of a lease? - Answers must be competent parties, legal use, provide something of
value.
-name of lessor and lessee.
-adequate description of premises
- conveyance of premises
-starting time and length of arrangement and agreed rental rates.
use of the premises: - Answers commercial property leases usually contain a clause that indicates how
the property can be used
longer lease terms (reliability CF vs. Flexibility) - Answers shorter term if you think lease rates will change
or want to change tenant mix.
restrictions on alterations or improvements to property - Answers usually require prior consent of
landlord, who owns the fixtures at end of leases?
rental payments for longer leases - Answers flat rent, graduated rent, indexed lease (CPI).
overage (percentage) rent - Answers tenant pays a rent based in part on the rates of the tenant's
business
Overage (Percentage) Rent - Answers ♣ In many retail leases, total rent is equal to base rent +
overage/% rent
(Base rent = $96,000 per year or $8,000 per month, 5% of gross sales charged as percentage rent, sales
threshold/breakpoint = $160,000 per month, store produces $200,000 in gross sales in a month.
Total rent = Base Rent + Overage Rent
Total rent = $8,000 + .05($200,000-$160,000) = $10,000)
, Negotiated Lease Provisions Often Include: - Answers ♣Use of the Premises
- commercial property leases usually contain a clause that indicates how the property can be used.
♣Longer Lease Terms (Reliable CF vs. Flexibility)
- shorter if think lease rates will change or want to change tenant mix
♣Responsibility for maintenance of Space
♣Restrictions on alteration or improvements to property
- Usually require prior consent of landlord, who owns the fixtures at end of lease?
♣Any Restrictions on operation of tenant's business
- Common in Retail
gross lease - Answers tenant pays no Operating expenses
net lease - Answers tenant pays property taxes
net net lease - Answers tenant pays property taxes and insurance
triple net lease - Answers tenant pays all operating expenses
Expense stops (common in office leases) - Answers ¬Owner responsible for OPEX up to specified (stop)
amount per sf of total rentable space in building.
¬Different tenants may have different $/sf stop amounts
Lease Options: Give tenant ability to do something without commitment - Answers ¬Contract provisions
that give holder the right-but not the obligation- to do something
¬Options may include:
♣Lease renewal, cancellation option, expansion options, relocation options
More options= higher base rents
Class A office property and leases - Answers highest grade.
-highest rents because of prestige in tenancy, location, and overall desirability.
-usually newer structures and typically owned by institutional investors.
class B office properties and leases - Answers rents usually less than class A because of a less desirable
location; fewer amenities, less impressive features, no elevator, ect.
