What makes commercial real estate different from other forms of real estate?
Commercial real estate produces income and hopefully generates positive returns on investment to the owners and other stakeholders. It is real property that has assigned leases that let others use the property in exchange for monetary compensation.
Is commercial real estate a large component of where you spend your time? Why or why not?
Yes, most people typically spend much of their time in a commercial real estate building or area, such as apartments, gyms, restaurants, bars, doctor’s offices, stores, and workplaces.
How is value derived when analyzing commercial real estate?
Value is based on the income productivity of real estate, including income (rent less expenses) and property appreciation.
What documents outline the ability of a commercial property to have value?
Leases are the contractual obligation between an owner and a tenant that define and outline the revenue generated from occupying a building.
6) What documents outline the ability of a commercial property to have value?
Leases are the contractual obligation between an owner and a tenant that define and outline the revenue generated from occupying a building.
What is meant by the term Income Productivity?
Income productivity is based on the income the property can generate. The total income is the current income and all future income. Remember Productivity is not so much related to the cost of the building. Market rent levels are typically independent of the purchase price of the building. Therefore, if you pay more for your building, you will probably just lower your overall investment return.
What is meant by “loss to lease”?
Many leases reflect market conditions and rents that existed when the lease was executed. Many financial statements estimate gross rental revenue based on (1) all rental space re-leased today at prevailing market rents and compare that amount to (2) actual rental revenue based on leases that have been executed at various times in the past. The difference between (1) and (2) is “loss to lease”, or the difference between current market rents and rents actually collected based on lease terms with each tenant. This is typically a term used in the multi-family residential commercial real estate sector.
