Deck 22: Managing Non residential Rental Property

Question 1

Of the following choices, which best describes the operating expenses that you would expect to be the paid by the tenant in a net lease agreement?

A) No operating expenses
B) Only property taxes
C) Both property taxes and insurance
D) All operating expenses

Answer 1

B

Question 2

Some tenants who are subject to long-term leases may desire to transfer all of their tenant rights and obligations to another party. This is commonly referred to as a(n):

A) assignment
B) sublease
C) concession
D) lease option

Answer 2

A

Question 3

The rental income generated by a lease can depend significantly on the proportion of property-level operating expenses paid by the tenant. In which of the following types of leases is the tenant responsible for all operating expenses?

A) Gross lease
B) Net lease
C) Net-net lease
D) Triple net lease

Answer 3

D

Question 4

In contrast to rent for residential units, rent for U.S. commercial properties is typically quoted as:

A) a dollar amount per month
B) a dollar amount per year
C) a monthly cost per square foot
D) an annual cost per square foot

Question 5

In commercial leases, rents do not necessarily have to be kept constant over the life of the lease term. One option is for there to be pre-specified increases in the contract rental rate over time, sometimes referred to as "step-ups" or "escalations." This type of rent treatment is commonly referred to as:

A) flat rent
B) graduated rent
C) indexed rent
D) percentage rent

Question 6

The lease is a contract between a property owner and tenant that transfers exclusive use and possession of space to the tenant, but allows the owner to retake possession of the property at the expiration of the lease. Which type of interest allows the owner to retake possession at the end of a lease?

A) Remainder interest
B) Reversion interest
C) Spousal interest
D) Co-ownership interest

Question 7

For most commercial property types, lease lengths can vary considerably. Therefore, both parties must tradeoff between the advantages and disadvantages associated with particular leasing terms. Owners may prefer longer leases for all of the following reasons EXCEPT:

A) Delay of re-leasing costs
B) Reduction of risk associated with declining interest rates
C) Gain flexibility
D) Stability of future cash flows

Question 8

The choice of which method to use in constructing the contracted rental rate can also be impacted by the type of property being leased. With which of the following property types would one most expect to see a percentage rent method used?

A) Apartment
B) Office
C) Industrial
D) Retail

Question 9

Once possession and control are conveyed in a lease agreement, the owner must provide the tenant with uninterrupted use of the property without any interference from any entity that may threaten to impose upon the tenant's leasehold interest in the property. In other words, the tenant is entitled to which of the following?

A) Quiet enjoyment
B) Tenant improvement
C) Concession
D) Expansion option

Question 10

When the supply of space exceeds the demand, it is common for owners to provide the tenant with a period of free or perhaps reduced rent. This is commonly referred to as a(n):

A) tenant improvement allowance
B) concession
C) sublease
D) expense stop

Question 11

A recent trend in commercial leases is for tenants to negotiate a cap on the amount of certain operating expenses they are required to reimburse the landlord. Such caps are usually negotiated on operating expenses thought to be at least partially controllable by the owner. Which of the following would typically be considered an operating expense controllable by the owner?

A) General maintenance
B) Property taxes
C) Insurance payments
D) Utility expenses

Question 12

A lease option is a clause that grants an option holder the right, but not the obligation, to renew the lease, cancel the agreement, relocate within a property, or even expand to adjacent space. The existence of these options in a leasing agreement:

A) reduces the expected present value of lease cash flows to the owner
B) increases the expected present value of lease cash flows to the owner
C) does not impact the expected present value of lease cash flows to the owner
D) causes the expected present value of lease cash flows to equal zero

Question 13

The majority of residential units in the U.S. are contained in multifamily structures, or apartment buildings that contain five or more housing units. Which of the following multifamily structures will range in height from four to nine stories and are typically found in both cities and suburbs?

A) High-rise apartment buildings
B) Midrise apartment buildings
C) Garden apartments
D) Condominiums

Question 14

The effective rent calculation is a common measure used to compare the true cost of one lease to another. While there are a number of limitations to this methodology, the effective rent calculation captures:

A) interlease risk
B) re-leasing costs
C) the advantages associated with lease flexibility
D) the time value of money

Question 15

While a sublease and an assignment are two distinct choices for a tenant who wishes to transfer his rights during the term of a lease, both agreements:

A) transfer all of a tenant's rights to another party
B) transfer only a subset of rights to another party
C) grant another party the right to cancel the original lease before expiration
D) maintain that the original tenant be held liable for fulfilling the original lease unless otherwise specified

Question 16

The two most important determinants of the classification of an office property are age and obsolescence. Which of the following classes includes office buildings that are older and reasonably maintained, but are below current standards for one or more reasons?

A) Class A office
B) Class B office
C) Class C office
D) Investment grade property

Question 17

As with any valid contract, enforceable leases must meet a number of requirements. One of these requirements is for each party to provide appropriate consideration. In a lease, which of the following constitutes the landlord's consideration?

A) Promise to pay rent
B) Passing on legal title to the property
C) Permission to occupy the space or property
D) Commission to the leasing agent

Question 18

The choice of which method to use in constructing the contracted rental rate can be impacted by the term of the lease. With a shorter lease term, which of the following methods is most likely to be observed?

A) Flat rent
B) Graduated rent
C) Indexed rent
D) Percentage rent

Question 19

When securing a new tenant for a commercial rental property, the owner of the property might incur an additional expense that amounts to the cost of refurbishing the rental space to meet the needs of the tenant's business. The allocation of money for this added expense is more commonly referred to as a(n):

A) tenant improvement allowance
B) concession
C) sublease
D) expense stop

Question 20

A tenant who expects her business to grow may wish to have a clause included in her lease that grants her the choice to lease adjacent space as soon as it becomes available. This lease option is more commonly referred to as a:

A) relocation option
B) right of first refusal
C) renewal option
D) consideration

Question 21

In retail property types, rents are quoted on the basis of which of the following?

A) Usable area
B) Gross floor area
C) Gross leasable area
D) Rentable area

Question 22

The large and generally well-known retailers who draw the majority of customers to a shopping center are more commonly referred to as:

A) Outlets
B) Anchors
C) Strips
D) Chains

Question 23

To the extent the tenant is permitted to alter the leased premises, the lease should clearly state when this may be done, and under what circumstances. The lease must also be clear about the ownership of such improvements once completed. Which of the following terms refers to items of personal property that are attached to the real property, are paid for and installed by the tenant, and may be removed by the tenant at the termination of the lease?

A) Trade fixtures
B) Anchors
C) Concessions
D) Expense stop

Question 24

Assume a retail tenant is paying a base rent of $120,000 per year (or $10,000 per month). In addition, the tenant must pay 7 percent of gross store sales in excess of $143,000 per month as percentage rent. If the store produces $170,000 in gross sales in a month, what is the total rent due for the month?

A) $10,000
B) $10,158
C) $11,890
D) $21,900

Question 25

In some leases, the method used to share responsibility for operating expenses is a hybrid of the four basic lease types. For example, the inclusion of which of the following clauses calls for only increases in one or more operating expenses, relative to a base year, to become the responsibility of the tenant?

A) Operating expense escalation clause
B) Tenant improvement allowance clause
C) Operating expense stop clause
D) Subordination clause

Question 26

Lenders may request that property owners of rental properties include a clause in their lease agreement that gives the lender the right to terminate the lease and evict the tenant, even if the tenant has fulfilled all of its responsibilities under the lease, in the case that the owner of the property defaults on her mortgage. This part of the lease agreement is more commonly referred to as a:

A) Subordination clause
B) Non-disturbance agreement
C) Relocation option
D) Expansion option

Question 27

Retail establishments are found in a variety of forms, the simplest of which is: (Hint: fast-food franchise)

A) Freestanding retail outlet
B) Strip center
C) Power center
D) Regional mall

Question 28

Which of the following classes of the office sector includes office buildings that are considered the most prestigious in their tenancy, location, amenities and overall desirability?

A) Class A office
B) Class B office
C) Class C office
D) Class D office

Question 29

Given the following information, calculate the load factor for this office property. Total usable area: 20,000 sq. ft., Tenant's prorated share of common area: 5,000 sq. ft.

A) 0.25
B) 0.80
C) 1.25
D) 4.00

Question 30

Newer industrial parks have begun to specialize in providing space that can be configured to suit the diverse needs of various tenants. This type of industrial space is more commonly referred to as:

A) Warehouse
B) Plant and Factory
C) Flex space
D) Research and Development

Question 31

In a net lease, the tenant is responsible for paying a clearly defined portion of the property's operating expenses. Based on your understanding of the standard definitions of "netness" in commercial leases, the tenant is responsible for which of the following in a net-net lease?

A) No operating expenses
B) Only property taxes
C) Both property taxes and insurance
D) All operating expenses

Question 32

Given the following information, calculate the effective monthly rent payment. Lease Term: 10 years, Concession: 1 year free rent to be spread over the term of the lease, Rental Space: 5000 square feet, Rental Rate: $20 per square foot per year, Landlord's discount rate: 10%.

A) $4,676
B) $5,901
C) $7,081
D) $10,122

Question 33

Which of the following core property types includes buildings designed for the temporary storage of goods such as inventory, company records, and excess raw materials?

A) Apartment
B) Industrial
C) Office
D) Retail

Question 34

Which of the following multifamily structures will typically consist of numerous two- to three-story buildings including a separate building containing a management office and clubhouse and is more common in suburban areas?

A) High-rise apartment buildings
B) Midrise apartment buildings
C) Garden apartments
D) Condominiums