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RECA Commercial Unit 2 2023 / 296 Questions & Answers/ Verified/ Graded A+
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RECA Commercial Unit 2 2023 / 296Questions & Answers/ Verified/ Graded A+
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.
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