UGBA 180 Chapter Notes - Chapter 9: Operating Cash Flow, Cash Flow, Consumer Protection
22 May 2018
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Chapter 9: Icoe-Producig Properties – Leases, Rets,
ad the Market for Space
• Residential properties are properties that provide residences for individuals or families
o Single family: detached in subdivision tracts, cluster developments, and zero lot line developments
o Multifamily: income producing properties – high rise, low rise, garden apartments
• Nonresidential properties
o Office
o Retail
o Hotel/motel
o Recreational: country clubs, golf clubs
o Institutional: government agency, hospital, university
• Mixed used developments: combinations of residential and nonresidential
• Rental market equilibrium
• As the market rental rate rises, more space is supplied by the building owners. The maximum amount of space that
can be leased at any given point in time is limited, however, to the existing stock of space.
• Real estate investors and developers should understand the business operations of potential tenant-users and how
certain locations will appeal to those users (which location can attract the most revenue/profit)
• Most real estate used by business firms are leased
o It is more cost effective than owning – if you only need a certain square footage, but only larger spaces are
available, ore apital upfrot, hae to ret out spae the usiess does’t eed
o Loss of focus on core business because some time must be dedicated to real estate activities
• Market rent: refers to the price that must be paid by a potential tenant to use (lease) a particular type of space
under then current market conditions.
• Vacancies: there will always be a period of vacancies even in areas when leasing activities are strong because it takes
time to make a space ready for a new tenant
• Underwriting leases is a very important component of risk assessment, which ultimately affects cash flow produced
by a property and hence its value
• Leases
o Lessor: owner of the property
o Lessee: tenant who occupies and uses the space and pays rent
• Leases and rental income
o Flat rents: when rents remain the same (or flat) for the term of the lease; common for apartment leases that
are short term and when tenant/user turnover occurs frequently
o Step-up rents: some leases include step-up clauses. These provide that rent will increase at the end of
specified time intervals and in specific amounts during the term of the lease.
o Indexed rents: another way of adjusting rents is to use a specified index as a basis for the adjustment (ie:
CPI)
o Percentage rent lease: rents adjusted based on revenue/sales performance
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