Investing in CRE
What is a cap rate, and why is it important
Cap rate = Annual NOI (net operating income) / value
used for comparing different real estate investments to assess their potential value
What is the difference between a gross and net lease?
Gross lease is a flat rate and net lease can include variable operating expenses like property tax, insurance, utilities
How might zoning laws evolve to accommodate trends like remote work or e-commerce?
Increase mix permit-use, need less traditional space for office and retail, allowing for space to accommodate to live-work-play spaces
Zoning laws allow for adaptive reuse to convert offices into residential, education, etc
Increases demand for industrial warehouses, delivery facilities
What's a new upcoming asset class related to AI?
AI data centers, used for storing huge amounts of tech for processing data
What is a REIT
Real Estate Investment Trust
Invest in real estate without directly owning property, similar to a stock
Can a tenant negotiate rent increases during a lease term?
Not unless specified in the lease agreement
How do zoning regulations impact the value of commercial real estate?
Whether a property can be used for retail, office, etc
Demand related to specific location
Development potential, how much space can be used (height, building density)
What is a “Class A” Property
High quality, premium commercial real estate with top amenities and location
How does the interest rate affect commercial real estate investments?
Higher rates increase borrowing costs, lowering overall returns
How long is a traditional lease?
3-10 years
What is an escrow account?
After the agreement between seller and buyer, the buyer deposits money into a third party account with an entity such as a bank until all conditions of the agreement are met
What is the difference between NOI and EBITDA?
NOI only focuses on income and property expenses to calculate revenue potential
EBITDA includes broader business expenses such as
What is a “Value-add” property?
Property with potential for higher return through renovating or improvements
What asset class typically has the shortest lease term?
Hospitality because of the dynamic market
What’s the role of a Financial Analyst when looking to develop a piece of property?
See if property is financially feasible by looking at
The market, valuation, cashflows, projected profits, investor relations, exit strategy
What are the purposes of trade organizations in commercial real estate
Benefits whole industry, networking / relationships, industry representation, professional development / education, market insight, ethical standardization, recruitment