Deck 9: Income-Producing Properties: Leases, rents, and the Market for Space

Question 1

Consider the figure above.If the demand for units increases,what would happen in equilibrium,holding everything else constant?

A)Market rent would decrease; equilibrium occupancy would decrease
B)Market rent would decrease; equilibrium occupancy would increase
C)Market rent would increase; equilibrium occupancy would decrease
D)Market rent would increase; equilibrium occupancy would increase

Answer 1

Market rent would increase; equilibrium occupancy would increase

Question 2

CPI adjustments are used to adjust rents by all or part of the increase in the Consumer Price Index.

Answer 2

True

Question 3

Overage rent is rent that exceeds expenses.

Answer 3

False

Question 4

The existing stock of space cannot be adjusted in the short run,but can be increased or decreased in the long run.

Question 5

Expense stops protect the lessee from unexpected changes in market rents.

Question 6

Analysis of effective rents tends to be superior to analysis of total rents over the life of a lease.

Question 7

Condominium complexes are considered to be nonresidential properties.

Question 8

The great majority of businesses lease the space they occupy rather than purchasing it outright.

Question 9

Consider the figure above.The difference between the existing stock of space and Point D represents:

A)Equilibrium occupancy
B)Market rent
C)Vacancy
D)Shortage

Question 10

To attract anchor tenants,property owners tend to charge them lower rents.They make-up for the lower rents by charging the anchor tenant higher CAM charges.

Question 11

A building owner charges net rent of $20 in the first year,$21 in the second year,and $22 in the third year.Using a 10 percent discount rate,what is the effective rent over the three years?

A)$20.00
B)$20.94
C)$21.73
D)$52.07

Question 12

The use of a CPI index in a lease contract shifts risk to the tenant.

Question 13

The term "usable area" is typically synonymous with "leasable area," in a building with multiple tenants.

Question 14

Free rent is a concession that a building owner may offer.

Question 15

Consider the figure above.Point D represents:

A)Equilibrium occupancy
B)Market rent
C)Vacancy
D)Shortage

Question 16

The term "percentage rent" refers to rent paid as a percent of space leased.

Question 17

For which of the following reasons would a business prefer to own space rather than lease it?

A)The business demands specialized or unique facilities
B)Owning allows the business to develop skills in operating,maintaining,and repairing real estate and the associated facilities
C)Owning reduces operating flexibility
D)The capital commitments with owning are lower than the capital commitments associated with leasing

Question 18

A gross lease is riskier for the lessor than a net lease.

Question 19

A gross lease is one in which the tenant only pays rent,and the owner of the property pays the operating expenses and provides all services.

Question 20

In projecting cash flows for an office property,net operating income is the income after deduction of mortgage payments.

Question 21

Which of the following would be considered as expense pass throughs in a lease?

A)Electricity
B)Landscaping fees
C)Security costs
D)Property taxes

Question 22

The difference between the existing stock of space and the equilibrium occupancy is known as:

A)Supply
B)Demand
C)Equilibrium
D)Vacancy

Question 23

The price a potential tenant must pay to lease a specific type of real estate under the current economic conditions is:

A)Percentage rent
B)Market rent
C)Effective rent
D)Base rent

Question 24

Which of the following is NOT considered to be an office or retail property?

A)Single-tenant - build to suit
B)Regional shopping center
C)Warehouse
D)Community center

Question 25

Which of the following does the term "in-line tenants" refer to?

A)Smaller stores in a mall that are not anchor tenants
B)Tenants whose sales are in line with estimates
C)Tenants who pay their rents on a timely basis
D)All stores located inside the mall,including anchors

Question 26

Income after deducting loss of rents due to vacancy and nonpayment of rents,as well as any concessions,is referred to as:

A)Potential gross income
B)Effective gross income
C)Net operating income
D)Before-tax cash flow

Question 27

Which of the following does the term "anchor tenant" usually refer to?

A)Someone who leases space
B)The largest tenant in an office building
C)A department store in a mall
D)The tenant who pays the highest rent in a mall

Question 28

Which of the following is TRUE for a net lease?

A)All expenses are paid by the owner
B)All expenses are paid by the tenant
C)All expenses are paid by the lender
D)All expenses are paid by the investor

Question 29

Which of the following tends to lower effective rents?

A)Percentage rent
B)Step up provisions
C)Concessions
D)CPI adjustment

Question 30

Which of the following is FALSE regarding cap rates?

A)Excess supply tends to drive cap rates up
B)Rising interest rates generally tend to lower cap rates
C)Excess demand and falling interest rates result in lower cap rates
D)Excess demand leads to lower cap rates

Question 31

A clause which requires a tenant in retail space to achieve a certain level of sales or the lease will be terminated is referred to as a:

A)Change clause
B)Termination clause
C)Option clause
D)Santa clause

Question 32

The supply of space is:

A)Inelastic in both the short run and the long run
B)Elastic in both the short run and the long run
C)Relatively inelastic in the short run,and highly elastic in the long run
D)Relatively elastic in the short run,and highly inelastic in the long run

Question 33

A 1,000 square foot office space is leased at $15.00 per square foot during the first year with $2.00 step-up provisions each of the following years.The lease is gross with an expense stop set at $6.65 per square foot,and yearly expenses per square foot are as follows: $6.00,$6.65,and $7.05.The lease provides for two months of free rent at the end of the lease term.If the lease term is three years and the discount rate is 10%,what is the effective rent per square foot?

A)$9.38
B)$9.50
C)$10.22
D)$10.46

Question 34

The dollar amount by which total rent exceeds base rent under a percentage lease for retail is referred to as:

A)Overage rent
B)Excess rent
C)Percentage rent
D)Marginal rent

Question 35

Which of the following describes the function of an expense stop in a lease?

A)Expenses are stopped from increasing
B)Expenses above the stop are paid by the owner
C)Expenses above the stop are paid by the tenant
D)Expenses below the stop are paid for by the tenant

Question 36

A 1,500 square foot office space is leased at $12.00 square foot.The space is vacant one month out of the year.Office expenses are $6.50 per square foot and an expense stop is set at $6.00 per square foot.What is the annual net operating income?

A)$7,500
B)$6,750
C)$15,750
D)$8,250

Question 37

Which of the following leads to rent premiums?

A)Apartments on the periphery of a site; higher floors with no elevators
B)Second or third levels in multi-level malls
C)Middle floors in an office building
D)Apartments on higher floors with elevators

Question 38

A clause in a non-anchor tenant's lease requiring the presence of an anchor tenant is referred to as a:

A)Non-compete clause
B)Co-tenancy clause
C)Joint tenancy clause
D)Anchor clause

Question 39

A building owner charges net rent of $20 in the first year,$21 in the second year,and $22 in the third year,but is providing six months of free rent in the first year as a concession.Using a 10 percent discount rate,what is the effective rent over the three years?

A)$17.28
B)$18.94
C)$20.94
D)$42.98

Question 40

Expenses for a 1,000 square foot office space are $6.00 per square foot.The lease specifies an expense stop of $5.40.What is the total expense paid by the landlord?

A)$5,400
B)$6,000
C)$600
D)$0

Question 41

A manufacturing business is contracting to lease a large,open building and is seeking to add partition walls and a large air conditioning unit in order to accommodate its specific needs.What type of lease is the building owner likely to want to agree to?

A)Gross lease
B)Modified lease with direct pass throughs
C)Single net lease
D)Triple net lease