Deck 22: Leases and Property Types

Question 1

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

Answer 1

C

Question 2

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

Answer 2

A

Question 3

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

Answer 3

B

Question 4

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

Question 5

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 6

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 7

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 8

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 9

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 10

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 11

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 prespecified 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 12

In an indexed lease,rents are dependent on a regularly reported index,most commonly the consumer price index (CPI).By using the CPI as an index rate,the risk of unexpected increases in general inflation is shifted to the _________,and therefore a _________ base rental rate will typically be required.

A)owner;higher
B)owner;lower
C)tenant;higher
D)tenant;lower

Question 13

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 14

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 15

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 16

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 17

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

Question 18

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

Question 19

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 20

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 expect to see a percentage rent method used?

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

Question 21

Which of the following property subtypes is often considered the least vulnerable to functional obsolescence because of its relatively simple structure and long economic life?

A)Industrial warehouse
B)Hotel
C)Retail strip centers
D)Suburban office

Question 22

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 23

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 24

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 25

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