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RECA Commercial Unit2 Exam Questions and Answers
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RECA Commercial Unit2 ExamQuestions and Answers
Commercial real estate assets have a number of attributes that make them
unique relative to other types of investments. These attributes include the
following: (x10) - -1. They involve land
2.Transaction time frames are long
3. Transaction costs are high
4. they are expensive
5. They are long lasting
6. Highly regulated
7. have a long production cycle
8. are management intensive
9. are heterogeneous
10. Involve measuring return on investment
1. Long-lasting, Durable Goods
2. Expensive, High-valued (left for well capitalized investors)
3. Transaction Costs: Due diligence and commissions alone comprise about
three to five percent of transaction costs.
4. Transaction Time Frame
5. Land
6. Heterogeneous: every parcel of land is unique so every commercial real
estate asset is unique. However, improvements are rarely identical as unique
site characteristics, land use regulations, and the market often require
different solutions from developers.
7. Return Measures
8. Management Intensive
9. Long Production Cycle: it takes time to develop and construct new
commercial real estate assets to meet the needs of the expanding
population. This results in the real estate supply being relatively slow to
respond to changes in demand (i.e. inelastic supply).
10. Highly Regulated
-Inelastic supply - -there is a limited supply. To illustrate, many cities are
geographically constrained and have a Land Use Bylaw that limits the ability
to change the use of a parcel of land. This results in a relatively inelastic
supply of land for commercial purposes. Inelastic supply means the supply
cannot readily adjust to changes in demand or price.
, -four major commercial real estate asset product types according to Real
Capital Analytics - -Office: Refers to real estate primarily used for office
space
Retail: Refers to retail properties, such as strip centres or neighbourhood,
community, regional and super-regional shopping malls
Industrial: Refers to real estate for industrial use, such as distribution,
manufacturing, or warehouse facilities and data centres
Apartment: Refers to multi-family rental properties.
Other miscellaneous product types include hotels, leisure (e.g golf courses),
and special use (e.g. casinos)
-3 miscellaneous product types - -hotel, leisure (e.g. golf courses), and
special use (e.g. casinos).
-Categorization by Building Class - -For example, office properties are often
categorized as Class A, B, or C.
-Categorization by Number of Storeys - -For example, apartment properties
are classified as either garden complexes (one or more low-rise buildings
consisting of four storeys or less) or mid/high-rise projects (one or more
buildings consisting of four storeys or greater).
-Categorization by building's Property Location - -For example, in addition to
building class, office properties are often categorized based on their location
as either central business district (CBD) or suburban.
-Categorization by building's Type - -For example, the International Council
of Shopping Centres (ICSC) defines different types of shopping centres
according to size (gross leasable area and land area), types of tenants, and
trade area.
-The length of time for the Commercial Real Estate Asset Life Cycle process
varies considerably depending on a number of factors, including the
following: (x5) - -The real estate asset's product type
The size and complexity of the project
The regulatory environment
The need for related infrastructure
,The financial and operational capability of the investor(s)
-A typical commercial real estate asset undergoes three phases during its
life cycle: - -Phase I: Land Acquisition and Development
Phase II: Building Construction
Phase III: Operations and Asset Management
-Phase I: Land Acquisition and Development
During Phase I, the developer acquires the land and undertakes the
necessary development and pre-construction work. This involves the
following: (x3) - -Completing a feasibility analysis
Enlisting the professional services of planning specialists, architects,
engineers and contractors, and marketing experts
Soliciting capital providers (e.g. investors, lenders)
-True or False - With the exception of a multi-family project, usually some
pre-leasing must be in place. - -True - Capital providers often require pre-
leasing, which involves obtaining lease commitments in advance of
construction. In fact, a construction lender may not commit construction
funds until there are leasing commitments for a certain percentage of the
space. With the exception of a multi-family project, usually some pre-leasing
must be in place. Once lease up of the rest of the asset is complete (i.e. full
occupancy), most of the risk associated with the development is eliminated.
-Four professional organizations that represent both property management
and asset management professionals. - -Building Owners and Managers
Association (BOMA)
Institute of Real Estate Management (IREM)
National Council of Real Estate Investment Fiduciaries (NCREIF)
Real Property Association of Canada (REALpac)
-True or False - In the process of operating and maintaining a real estate
asset, the property manager is responsible first to the tenant - -False - In the
process of operating and maintaining a real estate asset, the property
manager is responsible first to the investor and second to the tenants. The
property manager is expected to follow the investor's lawful instructions.
-Asset Management - -The property manager typically reports to the asset
manager. Asset management involves maximizing the value of a real estate
, asset or a portfolio of real estate assets according to the objectives defined
by the investor. Different investors have different objectives and maximizing
value may only be one of them.
-The property manager provides the following reporting: monthly (x3) ,
Annually (x3), for the purpose of (x3) - -Monthly:
Accounting
Operations
Leasing performance
Annually:
Operating expenses
Capital Budget
Cash flow
For:
Fianancial Control
Performance measurement
Trends detection and pre-emptive actions
-The Asset manager provides the following reporting: monthly (x3) ,
Annually (x2), for the purpose of (x2) - -Monthly:
Strategic Issues
Cash Flow
Debt
Annually:
Budget
Long-Term Planning
For:
Performance Measurement
Financial Planning
-Property Manager must hold a license in order to: (x8) - -Soliciting a
property owner to lease their premises
Marketing properties for lease
Soliciting a tenant to lease a premises
Negotiating or re-negotiating a lease between a tenant and landlord
(landlord includes the owner or a person who controls the right of disposition
for the property)
Approving real estate leases
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