Simulation 2 Session
Contents
Important Information before starting
Summary of Day 1
Summary of Day 2
Summary of Day 3
Summary of Day 4
Some practice questions
Important Information before starting:
Indemnifier vs Guarantor
-Indemnifier is broader obligations than that of a guarantor.
-In case of bankruptcy, the guarantor is not required to meet the bankrupt obligations’, the
payment of rent.
-Indemnifiers have more legal obligations than a guarantor.
The Balance sheet provides a financial snapshot based on assets and liabilities.
An audited financial statement ensures the details provided in the statement are accurate
and have been verified by an accountant.
The income statement provides a summary of revenue and expenses along with the
resulting net income. The chronological listing of individual transactions is found in individual
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journals (e.g. payroll journal, general ledger).
Understanding Each Environment site analysis Phase
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Cost Approach
The cost approach is based on the logic that informed buyers will not pay more for a property than it
will cost them to build a similar property from scratch and with the same level of utility. Cost approach
is most effective for industrial properties.
Cost approach includes 2 kinds of costs:
Land cost
Building cost (Hard Costs + Soft Costs)
LAND COST - cost of an area of land e.g. $ X area of the land.
HARD COSTS – Costs directly related to the construction of the building. Structural, mechanical, electrical,
site preparation, landscaping, excavation, tangible, easier to estimate, the preparation of the property to get it
up to functionality
SOFT COSTS - Costs related to intangible items such as permits, admin fees, lawyers and does not consider
direct construction costs, includes everything from architectural and engineering fees, to legal fees, pre- and
post-construction expenses, permits and taxes, insurance, etc.
**Industrial properties use hard and soft costs for the building only, do not include total land calculation that is
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for farming/agricultural**
What are the different types of conditions?
Types of Conditions
A condominium builder’s agreement contains conditions written in one of three ways:
1.
Condition precedent: ( something MUST be done or agreement will be null and avoid) Condition
precedent means if a condition is not fulfilled, waived or deleted (by amendment), no binding
contract has been formed. Whether the agreement is binding is subject to a future event. The
condition can be fulfilled, waived, or deleted in writing within an agreed time period, or the
agreement is void. It typically contains the words: “This offer shall become null and void….”
2.
Condition subsequent: ( Binding agreement is created and exists UNLESS a specific event occurs)
Condition Subsequent assumes there is a binding contract, unless a specific event occurs. Allows
the option to terminate an agreement under specific circumstances. If the buyer does not fulfill the
condition or does nothing about it, the purchase agreement proceeds. The buyer must notify the
seller in writing that they are not going forward with the agreement within the time specified.
Otherwise, the buyer is deemed to have waived their right to terminate. It typically contains the
words:....”this offer shall remain valid and binding…..”
3.
True condition precedent: (the action of a third party is required e.g. mortgage approval, severance
approval) True condition precedent means that a condition must be fulfilled as written and cannot
be waived by one of the parties. It Typically contains the words……”may be waived at the
buyer’s/seller’s sole option….”
How to write a custom condition
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These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
What are Leasehold improvements?
Leasehold improvements are also known as tenant improvements or build-outs. They are
modifications made by the property owner or the leaseholder to render the space more useful or
appealing for the tenant.
Leasehold improvements are a common practice in commercial real estate spaces. In these
commercial properties, the building owners want to attract and retain tenants for the longest possible
terms. These improvements may also be provided as part of a new lease negotiation.
Leasehold improvements are typically done by the tenant . Interior spaces are modified according to
the operating needs of the tenant—for example, changes made to ceilings, flooring, and inner walls.
Alterations to the exterior of a building or modifications that benefit other tenants in the building are
not considered leasehold improvements. Examples of non-leasehold improvements include elevator
upgrades, roof construction, and the paving of walkways.
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Key point to remember when doing calculation in commercial real estate:
Value to pay attention:
● Capitalization Rate % = Net Operating Income ÷ Sale Price x 100
● Effective Gross Income Multiplier = Sale Price ÷ Effective Gross Income
R/U Factor Formulas
R/U Factor = TOTAL Rentable area ÷ TOTAL useable area of building
You can take this factor and apply it to the square footage of the tenant’s usable area and this gives you the
tenant’s rentable area. You then can take that number and divide it by the total rentable area and use that
percentage against the CAM charges to get the tenant’s amount payable.
Rentable area ÷ R/U factor = Usable Area
Usable area x R/U factor = Rentable Area
Estimated Net Operating Income = Value x Rate
Debt Coverage Ratio = NOI ÷ Total Debt Service
Types of retail spaces commonly found in the marketplace:
Neighborhood Shopping Centre: under 100,000 sf
Community Centre: 100, 000 sf to 400,000 sf
Outlet Centre
Power Centre: as much as 650,000 feet
Big Box Retailer: 100,000 to 130, 000 sf
Regional Centre: 400, 000 to 800, 000 sf
Super regional:
Lifestyle Centre:
Freestanding Retail (gas station convenience store)
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Where would we find needed information?
- Geowarehouse : GeoWarehouse is a web-based, centralized property information source that provides state of
the art mapping and research tools, as well as professional reports. GeoWarehouse services real estate and
non-real estate professionals across Ontario.
- Economic Development Offices : The economic development officer of a community is responsible for
facilitating and promoting community economic development, in order to increase local employment though the
growth and development of business.The goal of the EDO is to lead major economic development initiatives and
investment projects on behalf of the government, and coordinate efforts across departments, agencies and
organizations to ensure program delivery alignment.
- Municipality (Zoning/Planning/Public Records) : Municipalities are playing an increasingly important role in
facilitating and regulating business within their boundaries. As the primary land use planning approval authority,
municipalities exercise significant power in determining the location, scope, timing and conditions of major development
projects.
- Local Real Estate Boards
What are the three types of industrial properties?
General purpose - Most common, can be easily converted e.g. warehouse , packaging, storage facilities
Single Purpose – cannot be converted e.g. oil refinery, plants/factories for single purpose
Special purpose – This can be used for same featured purposes industries, selected features, limited options to
convert e.g. distribution facility with loading facilities,
Industrial condominium vs Industrial freehold building
Prorated Rent/ Abate rent:
Prorated rent is an adjusted amount that you owe the landlord, based on the move-in date. Simply put: it's a
partial payment that is consistent with the period of time that you're staying at the property. It's a way for
landlords to charge tenants fairly.
Some important clauses
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Rent and Escalation Clauses
This clause allows to increase any operating cost to protect the landlord from paying extra.
The base rent a tenant pays in the first year is typically just a starting point. One of the most common lease
clauses is an escalation clause, which sets guidelines for the landlord to increase rent periodically. Over the
course of a long-term lease, owners are exposed to inflation and rising rental rates in the market. An
escalation clause allows you to keep rates close to market level without renegotiating every year. EScalation
clause needs not to be included in case of Triple net as tenant is already is paying TMI
Escalation Period/Clause why would the landlord include it or what happened due to this clause?
Answer - landlord can increase the additional rent during the lease term.
Renewal Clauses
Up to this point, it might seem like a commercial real estate lease agreement is designed to benefit the
landlord. But a renewal option favors the tenant. This clause gives tenants the right to extend their lease on a
pre-negotiated basis, so they get the benefit of a long-term contract but have the option of getting out after
the initial term. It’s not unusual for an initial five-year lease to have multiple five, seven, or even 10-year
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options.
That can be good news for commercial property owners who want to hold on to desirable tenants. The
downside for landlords is that sometimes the option is executed during an up cycle when the market could
support higher rent rates.
A continuous use clause is designed to avoid problems associated with dark space (meaning closed
or empty units) in a retail complex. The requirements place responsibilities on the tenant regarding when they
can be open for business, as well as requirements for staff, stock, and fixtures. Continuous use and dark
space clauses state that a tenant must continuously occupy the rented space for the duration of the lease.
The continuous use clause is accompanied by the covenants that the tenant will maintain a substantial
merchandise stock and fully staff the operation.
Restrictive Use The restrictive use clause of a lease limits, or in some way restricts activities of either the
landlord or tenant. Restrictive clauses are especially common in retail leases where they are used to ensure
a proper mix of tenants within a shopping centre. For example, one retail establishment may be permitted to
sell fresh fruit and vegetables, but not prepared food items because another tenant on the property is a
restaurant specializing in lunch and dinner service.
Services and Additional rent and charges clause
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Types of Rent:
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If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
Types of Leases
A gross lease is an agreement in which the tenant pays a fixed rent and the owner pays all
operating expenses associated with the property. This type of lease is very common, as many
tenants desire security in terms of rent costs. As such, many gross leases have annual escalation
clauses built into the lease to allow for changes in operating costs.
In a net lease, the tenant pays a portion of expenses associated with the leased property.
Depending on the arrangement of rent, there are three types of net leases: single net (Net), double
net (Net Net), and triple net (Net Net Net) leases.
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A percentage lease is mainly found in the retail property market. In this type of arrangement, the
tenant is typically required to pay a fixed minimum monthly rent (i.e., to cover taxes, maintenance,
and insurance as the bare minimum), plus a percentage of gross monthly income in excess of base
sales calculated using the minimum rent. This creates a type of partnership between the landlord
and tenant, and rates can be negotiated, depending on the type of business and certain factors, such
as the volume of business generated per square foot and markup levels of goods sold or services
offered.
A retail ground lease/Land Lease refers to the rental of land only, and is also known as a land
lease or pad lease. Despite the name, retail ground leases are also found in office, industrial, and
recreational sectors, and are common for standalone retail or restaurant sites. A retail ground lease
is often of a long duration involving a tenant who covenants to build a structure on the leased land.
The building serves as security for rental payments, and upon default by the tenant, the landlord may
terminate the lease.
Single net - Base net + 1 of TMI (taxes, maintenance, insurance)
Double net - Base net + 2 of TMI
Triple net- base rent +TMI (taxes, maintenance, insurance
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The Difference Between Industrial, Retail and Commercial Real Estate
Firstly an industrial property is defined as a property used for the actual manufacturing of
something, and can be considered either a factory or plant. This is usually zoned for light,
medium or heavy industry. This includes things such as warehouses, garages and
distribution centers etc.
Commercial/Retail property is a commercially zoned property used solely for business
purposes, the actual selling of the product, rather than its manufacture — retail stores, malls,
shopping centers and shops all huddling nicely under the retail umbrella.
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Note: Sublet and Assignment: in both cases the original tenant will stay obligated unless the landlord
expressly releases the original tenant.
What is an IRV triangle ?
There are 3 key terms in IRV: Income, Rate and Value
Income. This is the NOI (Net operating income) which is generated from the investment
Rate: (You may want to read this definition last.) Until you have been introduced to this term many
are confused but it is really quite simple. This is the cap rate which is similar to a rate of return. The
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rate of return that an investor expects to receive. The formula to determine the cap rate is NOI (Net
Operating Income) Divided by the price of the Property. (Example $100,000 property with a NOI of
$10,00 equals 10%) $100,000/10,000 = 10% Note: cap rates are established by finding the average
cap rates for your city. These rates will vary based on market conditions and class of properties. Ask
Realtors or research a few recently sold properties to establish a realistic average for your area.
Value: Value of or asking price of the property
I = Rate x Value
R= Income / Value
V= Income / Rate
Cost approach
Income approach
Comparison approach
Commercial Properties
Industrial building
Types of commercial properties
Office
Of all commercial properties, this is probably the
most commonly known type as many of us work
from our office on almost every other weekday.
Although offices are common, there are also various
types of offices such as grade A offices, high rise
offices, shophouse offices, serviced offices or even
co-working spaces. There are also virtual offices
available for companies or startups that usually only
require registered mailing addresses.
Retail
Retail properties are something most of us are
already familiar with as we usually associate
‘shopping’ with retail. Examples of such properties
are shopping malls etc.
Medical Suites
Medical suites are also commercial properties which
are built to cater to the strong demand for
healthcare services Medical suites can also be part
of mixed developments. Examples would be mixed
or integrated developments comprising medical +
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retail, medical + hotel or even medical + office..
Hotels
Hotels are required to cater to the accommodation
needs of visitors.Most hotels also have retail units
such as restaurants and bars within the building.
Summary of Day 1:
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DAY 1 – Commercial Property Type (OFFICE)
Write some of the differences between commercial and residential transactions here: (page 3)
Commercial VS. Residential
You must know how the selling and buying of commercial properties differs from that of residential properties
to ensure they can accurately identify and fulfill all your obligations.
Commercial
●
●
●
●
●
●
●
●
●
Return on Investment
Family or group of investors
return values
High value property
Shares included.
Zoning needs more due diligence.
Longer conditional periods
Longer closing
Longer conditional periods
Residential
-
Use/Enjoyment
Emotional values
Financial based on personal income
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● Transactions are more complex due to the
intensive research and due diligence required
● More conditions
● More environmental considerations
● More possibility of chemical contamination
● Shares involved
● Forms of ownership: corp, partnerships, sole
proprietorship
● More third parties involvement
● Financing based on income of the property
● Deposits are larger or multiple deposits
● Longer working hours
● Confidentiality agreements (seller might not
want to let the competitors, employees or
their customer know), more financial
disclosure included.
● Leases, dealing with more tenants
● Income and expenses
● Buyer motivations - less emotional, more
analytical eg. money, rate of return
● More experiences buyers
● Land use issues
How does the agreement of purchase and sale for a commercial property differ from an agreement for a
residential property (look at HST section 7 as well as signature section)? Page 3
APS Commercial vs. APS Residential
- FORM 100 – For HST - (included in/in addition too)
- Commercial: FORM 500 – For HST - (no option for included in/always in addition to)
●
Most of the commercial properties are subject to HST, if the sale is not subject to HST then the seller agrees to
clarify on or before the closing. Any HST on Chattels is not included in the purchase price.
- FORM 500
●
●
(Extra line is for the Name of Corporation/Company, if none exist, line is left blank), seal will go under the
signing officer.
Signature – on the commercial side, an authorized person would sign, a corporation seal would be there and a
statement that says “I’ve an authority to bind the corporation.”
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These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
Why is it important to understand the differences between residential and commercial properties?
How do you think your role as a commercial salesperson is different from your role as a residential
salesperson?
-
Timeframe; typically, much longer transaction periods for commercial over residential
Commercial transactions are usually much more complex than residential transaction
Zoning requirements will play a larger factor in best/highest use of property
More knowledge is required by the salesperson with regards to tenants/owners
Higher level of emotion in residential transactions vs commercial transactions
More business hours with commercial (9-5) vs residential (evenings/weekends)
Commercial can involve non-disclosure/confidentiality agreements
Commercial buyers are typically more experienced in real estate transactions
Commercial ownership often involves corporations rather than individual ownership
Residential resale typically does not have to pay HST
HST is always payable on commercial transactions
Page 7
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What questions would you ask the client about their needs?
1. Intended purposes to purchase the office space
2. What the ownership will look like (solo, partners)
3. What is the budget
4. Are they willing to negotiate in terms of - space, money
5. Length of time they will be here
6. Location for the office
7. What is the parking requirement (as per employees and customers if any
8. Visibility of the office
9. Any view preference
10. Building preference
What information would you, as a salesperson, be required to gather and/or verify to perform due diligence?
Information to Verify/Gather for Office Properties
- building physical age
- condition of the building
- Zoning, added value components
- Parking
- Proximity to highways
- Survey
- Building accessibility
- Visibility
- Lot dimensions
- Potential for improvements
- Short/Long term investment
- Determining price range for purchase
Why do we verify information we have gathered? Why does this information matter?
●
●
●
●
So that buyer can make informed decision
To determine material facts and protect and promote the best interests of the buyer to comply with REBBA
due diligence
to protect our buyer and ourself
Where would you find this information?
●
●
●
●
GeoWarehouse
Municipality
Economic Development Departments (EDD),
Local real estate boards and associations.
What information would you, as a salesperson, be required to gather and/or verify to perform due
diligence?
*Conditions to be considered for agreement of purchase or sale of Office Property* (RECO
requirements, not real-world scenario)
Points of discussion during the class debrief:
Difference between commercial / residential property, clients’ needs, how to verify information, how to access the
information
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Identify issues that may require clauses – from the following list. Page 13
- Zoning – included – determine best use/legal conforming use. Existing use is by law. Make sure the
existing business copley with current zoning by obtaining a list of permitted uses
- Financing – included – determines financial viability and provides assurance. Maybe more
expensive. Give the buyer the opportunity to investigate and obtain suitable financing. Needs for 30
days period
- Energy Efficiency – included – (due diligence add but buyer can decide after) it may be included or
not, it depends on the buyer’s choice. To determine monthly/operating costs It’s not necessary for
every property. Assess the energy efficiency of the building (e.g. heat loss)
- Parking – included – does available parking meet zoning requirements .adequate parking and parking
ratio and need of the tenant.
- Building Condition – included - need to know the condition of the structure (building report/engineer
report), structural integrity can be verified, deficiencies noted. Age of the building, and patent
- Telecommunication System – included –ensure adequate building support for telecommunications,
verify ample building support for telecom. It is an office
- Building Permit – included – yes, provides verification that all work orders are closed, changes made
by tenants meeting zoning by law or not build-outs
- Severance – excluded – not looking to divide land, do not need to include
- Environmental Issue – include – could identify past environmental issue/area of concern, also may be for
financing it is needed,
- Tarion Warranty – excluded – Tarion does not apply to commercial, builder may warrant
- Demographics – excluded – not needed as demographics apply to retail, not office
- Service Contracts – included – Shows expenses and the names of the contractors for the maintenance
of the property such as landscaping, cleaning, garbage, maintenance, snow removal, property
management , can we assume the contract, are we bounded to the contract,
- Leases – included – covers current leases, provides relevant tenant history/turnover
- Financials – included – outlines cost/income, provides full financial picture of property
- Legal Advice – included – always promote and protect best interests with lawyers. Advise the buyer to
obtain independent legal advice regarding the transactions.
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These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
What are the different types of conditions?
Types of Conditions
A condominium builder’s agreement contains conditions written in one of three ways:
1.
Condition precedent: ( something MUST be done or agreement will be null and avoid) Condition
precedent means if a condition is not fulfilled, waived or deleted (by amendment), no binding
contract has been formed. Whether the agreement is binding is subject to a future event. The
condition can be fulfilled, waived, or deleted in writing within an agreed time period, or the
agreement is void. It typically contains the words: “This offer shall become null and void….”
2.
Condition subsequent: ( Binding agreement is created and exists UNLESS a specific event occurs)
Condition Subsequent assumes there is a binding contract, unless a specific event occurs. Allows
the option to terminate an agreement under specific circumstances. If the buyer does not fulfill the
condition or does nothing about it, the purchase agreement proceeds. The buyer must notify the
seller in writing that they are not going forward with the agreement within the time specified.
Otherwise, the buyer is deemed to have waived their right to terminate. It typically contains the
words:....”this offer shall remain valid and binding…..”
3.
True condition precedent: (the action of a third party is required e.g. mortgage approval, severance
approval) True condition precedent means that a condition must be fulfilled as written and cannot
be waived by one of the parties. It Typically contains the words……”may be waived at the
buyer’s/seller’s sole option….”
When identifying issues –
Consider…
●
Property details : condition, contamination, age, zoning, building permits etc.
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●
●
Surroundings area : surrounding causing any contamination, new development, existing development, space
for parking, any future improvements possible if needed
Buyers concerns : What buyer is bringing to the table
Protect buyers’ best interests
As a salesperson to consider buyer’s best interest, we can gather and verify information. Most important conditions
need to be added to the offer to protect buyers’ best interest. Refer to a third party for any professional knowledge if
you are uncomfortable or have no/less knowledge.
A clause must have (“W” steps):
Who is to do it?
Who is to pay for it?
What is to be done?
Within what time limit?
What is to happen in the evening : when it is not done?
That it may be waived
-----------------------------------
Page 18
Scenario Background Information During your conversation with the buyer, they mention they’d like to give
the property more exposure by erecting a pylon sign. This requires you to create a custom clause (condition
precedent) to address the buyer’s concern. You will need to write a custom condition to determine if a pylon
sign can be erected on the property in the desired location and size.
What are the key components of a conditional clause (“W” steps)?
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How to write a custom condition
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These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
A salesperson should be able to: Page 22
• Explain what leasehold improvements are, who owns them, and who is responsible for them
Leaseholder or Tenant Improvements
Leasehold improvements are also known as tenant improvements or build-outs. They are
modifications made by the property owner or the leaseholder to render the space more useful or
appealing for the tenant.
Leasehold improvements are a common practice in commercial real estate spaces. In these
commercial properties, the building owners want to attract and retain tenants for the longest possible
terms. These improvements may also be provided as part of a new lease negotiation.
Leasehold improvements are typically made by the owner. Interior spaces are modified according to
the operating needs of the tenant—for example, changes made to ceilings, flooring, and inner walls.
Alterations to the exterior of a building or modifications that benefit other tenants in the building are
not considered leasehold improvements. Examples of non-leasehold improvements include elevator
upgrades, roof construction, and the paving of walkways.
• Understand what happens to the leasehold improvements at the end of tenancy
Who pays for leasehold improvements?
Who pays for the leasehold improvement can be decided by certain factors
- Market forces (less space, more tenants in the market) also impact the negotiation
- Landlords provide tenants with allowance or sometimes the tenant or buyer pays in full or part for that.
- it is the lease negotiation and based on the contract
Who owns leasehold improvements?
- Landlord owns all leasehold improvements (not trade fixtures)
What happens to them after leasehold expires?
- Ownership is with landlord; landlord may require tenant to revert any improvement back to original state of
property
- if as per contract tenant taking the improvements, the unit needs to bring to the original situation
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- if not discussed earlier, improvements will stay with the owner.
The capitalization rate (also known as cap rate) is used in the world of commercial real estate to
indicate the rate of return that is expected to be generated on a real estate investment property.
Value to pay attention:
●
Capitalization Rate % = Net Operating Income ÷ Sale Price x 100
●
Effective Gross Income Multiplier = Sale Price ÷ Effective Gross Income
R/U Factor Formulas
R/U Factor = TOTAL Rentable area ÷ TOTAL useable area of building
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You can take this factor and apply it to the square footage of the tenant’s usable area and this gives
you the tenant’s rentable area. You then can take that number and divide it by the total rentable area
and use that percentage against the CAM charges to get the tenant’s amount payable.
Rentable area ÷ R/U factor = Usable Area
Usable area x R/U factor = Rentable Area
Estimated Net Operating Income = Value x Rate
Debt Coverage Ratio = NOI ÷ Total Debt Service
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These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
DAY 2 – Commercial Property Type (Retail)
Types of retail spaces commonly found in the marketplace:
Neighborhood Shopping Centre: under 100,000 sf
Community Centre: 100, 000 sf to 400,000 sf
Outlet Centre
Power Centre: as much as 650,000 feet
Big Box Retailer: 100,000 to 130, 000 sf
Regional Centre: 400, 000 to 800, 000 sf
Lifestyle Centre:
Freestanding Retail (gas station convenience store)
 Neighborhood Shopping Centre
 Community Centre
 Outlet Centre
 Power Centre
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 Big Box Retailer
 Regional Centre
 Lifestyle Centre
 Freestanding Retail (gas station convenience store)
 Main Street Retail
 Downtown Shopping Malls
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What questions would you ask clients about needs for retail properties? Page 3
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Potential uses of the property
Budget/price point
Return on investment, what are their investment goals
Location, accessibility, amenities, visibility
Timeframe : when needed, long term or short term
Property management/maintenance
What type of retail mix/size
Area/how far from arterial roads/highways/transit
Space Requirements
Parking
Demographics
Energy Efficient
Short Term/Long Term Investment- Goals
What information would you, as a salesperson, be required to gather and/or verify to perform due diligence?
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- Demographics
- Zoning
- Market
- Location
- Accessibility
- Improvements
- Competition nearby
- current use
- Proximity to Highway
- ESA
- future development
--Threshold : to determine the population size necessary to support the business.
- Range (how much customer want to drive to go to the store)
- Survey (if property is less than 20 years city might will have
New Development: depends what kind of business is coming to the area. Positive if a new population is
coming. Negative if new development hides and decreases the visibility of the store.
Why is this information important?
- Competition – avoid similar retailers or competing businesses within the vicinity
- Range – distance clients or customers are willing to travel for goods or services
- Clustering – grouping together of complementary businesses
- Threshold – Determining the demographics of population and economic considerations
- Traffic Counts – Estimated number of people passing by whether driving or walking
- Transit – Property is accessible by multiple modes of transportation (car/bus/train)
- New Development/Redevelopment – could affect viability of retail plaza in the future
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Where would we find this information?
- Geowarehouse : GeoWarehouse is a web-based, centralized property information source that provides state of
the art mapping and research tools, as well as professional reports. GeoWarehouse services real estate and
non-real estate professionals across Ontario.
- Economic Development Offices : The economic development officer of a community is responsible for
facilitating and promoting community economic development, in order to increase local employment though the
growth and development of business.The goal of the EDO is to lead major economic development initiatives and
investment projects on behalf of the government, and coordinate efforts across departments, agencies and
organizations to ensure program delivery alignment.
- Municipality (Zoning/Planning/Public Records) : Municipalities are playing an increasingly important role in
facilitating and regulating business within their boundaries. As the primary land use planning approval authority,
municipalities exercise significant power in determining the location, scope, timing and conditions of major development
projects.
- Local Real Estate Boards
Salespersons Responsibilities:
- Determine the requirements of the buyer
- Gather all relevant information
- Know where and how to gather information from various sources based on the buyer’s requirements, you shortlist
two retail plazas for your buyer. Details about the two properties you shortlisted:
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What potential issues might you be concerned about while performing due diligence for the two
properties? Page 4
**Dry cleaner (service on site) Dry cleaning depot ( just dropping ) Dry cleaner will have environmental issues - odour, contamination, negative impact on financing or insure the
property
Restaurant and Hair/Nail Salon: chemical use at Hair salon and Restaurant contamination
Scenario Background Information Page 7
You agree with the buyer, who chooses Plaza 2 despite the vacancy. The possible environmental issues
with the dry cleaning business would impact their ability to obtain financing for Plaza 1
Note any information and buyer requirements you think you should consider before identifying
clauses for the offer
-
Zoning
Building permit
Offer price
Deposit: how much and how (how many deposits)
Completion date
Time frame
Ownership model
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- Zoning – include – determine best use/verifies legal conforming use, because the buyer
would like to investigate adding another unit.
- Financing – includes – determines financial viability and provides assurance. To give the
buyer the opportunity to investigate and obtain suitable financing.
- Parking – include – does available parking meet zoning requirements
- Building Condition Inspection– include - structural integrity can be verified, deficiencies
noted
- Building Permit – included – yes, provides verification that all work orders are closed,
due to the fact that the buyer wants to add an additional unit to the plaza, the offer should
be conditional upon determining if a building permit can be obtained with respect to the
property
- Environmental Issue – include – could identify past environmental issues/areas of
concern. Also needed for the insurance purposes.
- Service Contracts - include – To determine the maintenance costs for the property.
maintenance, snow removal, property management
- Leases – include – covers current leases, provides relevant tenant history/turnover
- Financials Statements – include – outlines income/expenses, provides full financial
picture
- Legal Advice – include – always promote and protect best interests with lawyers. Leading
practice to advise the client to seek independent legal advice.
- Insurance – include – cost does not exceed what the client can afford. To make sure
insurance can be obtained or if assumable.
- Inspect Systems – include – Check HVAC, life safety systems, sprinklers et cetera.
- Warranty Equipment – include – To identify potential environmental issues bases
history of property and surrounding area, warranty on systems and equipment
- Custom Condition – include – Ensure additional units can be built as desired if
there is enough empty space available on the lot.
- Energy Efficiency – included – it may be included or not, it depends on the buyer’s
choice. To determine monthly/operating costs
- Telecommunication System – included – verify ample building support for telecom
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Page 12
Page 12
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The offer is conditional upon the buyer determining, at the buyers own expense and satisfactory in the buyer’s sole
and absolute discretion, that an additional unit of __________size can be added to the existing property. Unless the
buyer gives notice in writing to the seller personally or in accordance with any other provisions for the delivery of
notice in this agreement of purchase and sale or any schedule there to not later than ____ PM on the --------- day of
-------, 2021, that this condition is fulfilled, this offer shall be null and void and the deposit shall be returned to the
buyer in full without deduction. The Seller agrees to cooperate in providing access to the property, if necessary, for
any inspection of the property required for the fulfillment of this condition. This condition is included for the benefit of
the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time
period stated herein.
1.
Condition precedent: ( something MUST be done or agreement will be null and avoid) Condition
precedent means if a condition is not fulfilled, waived or deleted (by amendment), no binding
contract has been formed. Whether the agreement is binding is subject to a future event. The
condition can be fulfilled, waived, or deleted in writing within an agreed time period, or the
agreement is void. It typically contains the words: “This offer shall become null and void….”
2.
Condition subsequent: ( Binding agreement is created and exists UNLESS a specific event occurs)
Condition Subsequent assumes there is a binding contract, unless a specific event occurs. Allows
the option to terminate an agreement under specific circumstances. If the buyer does not fulfill the
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condition or does nothing about it, the purchase agreement proceeds. The buyer must notify the
seller in writing that they are not going forward with the agreement within the time specified.
Otherwise, the buyer is deemed to have waived their right to terminate. It typically contains the
words:....”this offer shall remain valid and binding…..”
3.
True condition precedent: (the action of a third party is required e.g. mortgage approval, severance
approval) True condition precedent means that a condition must be fulfilled as written and cannot
be waived by one of the parties. It Typically contains the words……”may be waived at the
buyer’s/seller’s sole option….”
When choosing between precedent and condition subsequent, which shows more commitment by the
buyer?
- Subsequent has no waiver, shows more good faith and is binding if nothing is done
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Page 17
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Explaining Clauses to a Retail Buyer Role Play Introduction
Explain the details of a condition included in Schedule A and confirm the buyer’s understanding.
What financial information do we need to determine the value of a retail property?
- Income and Expenses (rent, other income)
- Expenses (property taxes, maintenance, service contracts)
- Assets (building value, land value, equipment)
- Liabilities (mortgage, commitment to franchise agreements, accrued taxes)
Key points to remember before you proceed further:
• When you are doing per sq. ft. calculations, it will be an annualized number
• TMI stands for taxes, maintenance, and insurance, which are expenses that the landlord will try to recover as
additional rent and is not considered income for the building.
• We are looking for a potential rental income calculation. Therefore, include any vacant units while doing
calculations.
When determining value of a retail property it is important to remember:
- Price per Square Foot is always annualized
- If not monthly written beside rent then assume it as annual
- Do not include TMI in income as they are recoverable
- Always use market rent (fully occupied) vs vacancies
- Keep eye out for additional income
“What steps could you take to become more comfortable determining the value of a retail property?”
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Access and verify the financial information. Make sure to read and understand the information. Double check the
numbers. Use proper formulas to calculate the number to come to proper value.
What is given?
Potential income = Unit 1&2 rent ( 1200 X 21 X 2 = 50,400) + Unit 3,4,5,6 ( 1000 X 17.50 X 4 =
70, 000) = 120, 400
Vacancy rate = 2% ( 120,400 X 2% = 2,408 )
Effective rental income/ gross income = 120,400 - 2, 408 = 117,992
Other income = TMI (1200 X 5.50 X 2) + (1000 X5.35 X 4) not including
Gross operating income= 9,500
Operating expensive =
Net operating income= 117,992 - 9,500 = 108,492
Cap rate = 6%
value= 108, 492 / 6% = 1,808,200
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Introduction to Industrial Properties : “Industrial” refers to any business dealing with manufacturing goods.
“Commercial” refers to any business done with the sole motive of gaining a profit.
What are the three types of industrial properties?
General purpose - Most common, can be easily converted e.g. warehouse , packaging, storage facilities
Single Purpose – cannot be converted e.g. oil refinery, plants/factories for single purpose
Special purpose – This can be used for same featured purposes industries, selected features, limited options to
convert e.g. distribution facility with loading facilities,
What are some industrial property uses that you can think of?
Refinery
Oil refinery
Sawmill
Plants
Packaging
Storage
Warehouse
Military
Storage
Distribution centre
Trampoline
Race cars (indoor gocarts)
Water park
Paintball
Food processing
----------Page 38
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Gathering and Verifying Information for Industrial Properties Salesperson:
Your What information would you, as a salesperson, be required to gather and/or verify to perform due
diligence?
• Determine the requirements of the buyer for the purchase
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●
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multiple loading docks, clear height of 30 ft., 20,000 square feet of space, at least 10% office space, ample
parking, a fenced perimeter, and a heated warehouse, with the requirement of a transformer to increase
voltage, and an adequate sprinkler system.
In addition to all these requirements, the buyer would also like to have a separate building for the storage of
containers/cylinders of Puron gas• Gather all the relevant information required for the property
Location, Time Frame, Financial Capacity, Accessibility, Amenities, Transportation Facilities, Security, Size
of building and lot,
Identify Clauses for Agreement of Purchase and Sale for Industrial Properties
Clauses/Conditions to be included when purchasing Industrial property:
- Zoning – included – determine best use/legal conforming use,
- Financing – included – determines financial viability and provides assurance
- Energy Efficiency – included – determine monthly/operating costs, due to heated warehouse
- Parking – included – does available parking meet zoning requirements
- Building Condition Inspection – included - structural integrity can be verified, deficiencies noted (building
inspection)
-Requirement of a transformer – included - to verify ample voltage to be delivered to meet the needs.)
-Survey - included - to find our the fenced perimeter meets the bylaws and actual measurements
-Telecommunication System – included – verify ample building support for telecom
- Building Permit – included – yes, provides verification that all work orders are closed
- Environmental Issue – include – could identify past environmental issue/area of concern, automotive
repair shop and old phase 1 assessment
- Service Contracts – included – maintenance, snow removal, property management
- Legal Advice – included – always promote and protect best interests with lawyer
- Custom condition – included – anything to do with adding accessory building (storage)
- Insurance – include – cost does not exceed what client can afford
- Inspect Systems – include – Check HVAC, life safety systems, sprinklers et cetera
- Warranty Equipment – include – warranty on systems and equipment
What information would you, as a salesperson, be required to gather and/or verify to perform due
diligence? Page 39
- Clients’ potential use of the space
-Clients wants vs. needs
- budget and timeframe
- clients’ capacity and willingness to negotiate
- Bay width, bay height, clear height, floor load, dock access
- Environmental site assessment
- Zoning
- Building Permits
- Proximity to transit (air, sea, road)
- Parking/Accessibility
Where would you find this information?
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These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
- Municipality (Planning, Zoning)
- Economic Development Office
- Ministry of the Environment / Environment Agencies, Third party pros.
- Geowarehouse
- Real Estate Boards/Associations
What do you see as different for gathering and/or verifying information for an industrial property?
- Ceiling height, bay depth, loading docks
- Proximity to transportation
- Buyers safety needs
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Day 3 – Commercial Properties – Industrial Property
Understanding Each Environment site analysis Phase
Phase 1 ESA:
-visual and historical investigation of the property and surrounding area and is intended to
identify potential pre-existing contamination without laboratory testing, taking samples, or
intrusive investigation
- Not laboratory testing
- Timeline: 2 -3 weeks
- Cost: $1500 - $2500
Phase 2 ESA:
- Taking of samples of soil and groundwater to determine the extent of contamination.
- Samples numbers depend upon what is the area, sq feet. Topography also decide how
many samples you will take e.g. low land or top land
- Laboratory testing included
- Timeline: 2-3 months
- Cost: $15,000 - $30,000
Phase 3 ESA:
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- Remediation process where the contaminated soil is removed from the property and
clean soil is brought in to replace it
- New methods now are able to clean soil on the spot without removing it
- Timeline: 8 months - unknown based on the type of contamination and area of the
property
- Cost: $100,000 - more then the value of the property
Cost Approach
The cost approach is based on the logic that informed buyers will not pay more for a property than it
will cost them to build a similar property from scratch and with the same level of utility. Cost approach
is most effective for industrial properties.
Cost approach includes 2 kinds of costs:
Land cost
Building cost (Hard Costs + Soft Costs)
LAND COST - cost of an area of land e.g. $ X area of the land.
HARD COSTS – Costs directly related to the construction of the building. Structural, mechanical, electrical,
site preparation, landscaping, excavation, tangible, easier to estimate, the preparation of the property to get it
up to functionality
SOFT COSTS - Costs related to intangible items such as permits, admin fees, lawyers and does not consider
direct construction costs, includes everything from architectural and engineering fees, to legal fees, pre- and
post-construction expenses, permits and taxes, insurance, etc.
**Industrial properties use hard and soft costs for the building only, do not include total land calculation that is
for farming/agricultural**
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Scenarios Page 10 and
11
Scenario 1
How would this impact the purchase
of the property?
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Contamination due to tires can be
concerned
Deal can fall off
Negatively impact the buyer’s
decision
Financial institute may need
phase 1 to approve finance
Who would be responsible for costs
associated with environmental testing
and remediation?
-Seller may remedy for the costs for
remediation
-negotiation for the price and remediation
cost
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Scenario 2
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-
Property was being used
For plastic manufacturing
Phase 1 needed
Financial institute may need
Phase 2 might needed because
of the potential contamination
from plastic manufacturing
contamination
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-
Based on the negotiation
Looking at the many positive points
of the property, may be buyer will be
willing to pay
Seller if he doesn’t want to stick to
the contaminated property
It can be based on seller and buyer
motivation
If remediation necessary,plastic
manufacturer (person responsible
for contamination) is responsible to
the cleanup
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Scenario 3
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Contamination from abandoned
gas station
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Plastic manufacturer will pay
Considering timeline, seller or buyer
can pay but then go after plastic
manufacturer to pay or their
insurance
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phase 1 buyer but also negotiable
If there is no track of the gas station
history as it is abandoned. In this
case the seller who bought or
currently own it is liable
Puron is a chemical that they want to store
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These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
Page 27:
Cost approach is most effective for industrial properties (property is used rather than leased out), more
objective than subjective
Cost approach is combination of two costs
Land Cost + Cost of Building (Hard cost + soft cost)
1. HARD COSTS – Structural, mechanical, electrical, site preparation, landscaping, excavation, tangible,
easier to estimate, the preparation of the property to get it up to functionality
2. SOFT COSTS - not considered direct construction costs, includes everything from architectural and
engineering fees, to legal fees, pre- and post-construction expenses, permits and taxes, insurance, etc.
**Industrial properties use hard and soft costs for the building only, do not include total land calculation
that is for farming/agricultural**
Soft cost and hard cost are connected to the building cost. So only include building area (20,000)
-
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-----------------------------------------------------------------------------Page 32
How is an industrial condominium different from an industrial freehold building?
Industrial condominium
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You own unit and share of common elements
Pay maintenance fee, condo fee
Rules, regulations,
Condominium corporation
Status certificate
Parking storage info
Reserved funds
Limitations when modifying the internal layout.
Common elements
Shared services
Higher costs and restrictions
Industrial freehold building
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You own entire building and land
Property owner responsible for the maintenance
minimal limitations when modifying the internal
layout of the structure.
No common elements in the case of fee simple
ownership of a fee standing buildin
no shared services such as security and utilities
How does a real estate transaction for an industrial condominium differ from a transaction
involving an industrial freehold building?
Industrial condominium
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Industrial freehold building
May need permission from condominium
corporation
Status certificates: reserve budget, special
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-
assessments (something needs to be done but
no reserve fund then special assessment
needed)
Status certificate clause needed
LEASING Commercial Condominium –
Types of Leases
See first few pages of this document to learn more in details about these leases
Single net - Base net + 1 of TMI (taxes, maintenance, insurance)
Double net - Base net + 2 of TMI
Triple net- base rent +TMI (taxes, maintenance, insurance
* **TMI is landlord expenses that the landlord passes to the tenant so receiving TMI from the tenant is not
landlord’s income. .
“What do you think is the most important information to have about a property when trying to determine
the type of lease?”
Zoning, permitted usage, rules – bylaws, Type of Lease, Rent and TMI amount, Size, Location, Amenities
available, accessibility
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If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
“How might you prepare to be more comfortable communicating with tenants about their concerns?”
Have knowledge of the current market condition, issues. Understand what is written on the documents
and be ready to explain. Always refer them to the third party professionals.
Why should you consider the following variables, when representing a client who is buying/selling a farm?
Day 4 – Tenant concerns and issues related to commercial
properties
When in
what conditions free rent can be offered?
May be paying TMI for the period
If premises are not ready
Market situation (more premisses and less tenants)
representing a tenant, some items you should discuss include:
● Free rent period
● Length of the lease
● Abate rent
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●
●
●
●
●
●
What clauses are added
Lease type
Rent type
Leasehold improvements
Taxes, Maintenance, and Insurance (TMI) concerns in a triple net lease
Option to renew
What does a tenant need to understand regarding rent-free periods?
● What are his rights in case of unavailability of possession
● What is happening to the lease period if abate happens
● Starts at the beginning of the lease
● Tenant still responsible to pay TMI (Could be included in rent-free, but by default they would still pay
TMI)
● Base rent is what is free.
● Signage & parking is also negotiable.
● Rent-free period is not always available- it is negotiable, based on market conditions, length of the
lease.
● Understanding the abate clause
Why might a tenant be concerned about the length of lease?
● Longer lease provides stability.
● Negotiating power for a longer lease.
● Leasehold improvements- shorter lease means you don’t get the best use from the leasehold
improvements.\
● Commitment term
● Market rate
● Liabilities
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Why might a tenant be concerned about a Taxes, Maintenance, and Insurance (TMI) in
a triple net lease?
●
Explain there are other expenses beyond TMI.
●
That they will increase yearly.
●
Physical inspection- furnace, HVAC, to ensure energy efficient and that they are in good working
order.
Why might a tenant be concerned about an option to renew?
●
●
It is beneficial for tenant to have a cap for increase in rent for renewal clause
If the tenant takes the option to renew and the landlord tries to increase rent unfairly, the tenant
has the option to go to arbitration where the courts will decide the rent which the tenant must
agree to.
● If the tenant does not take the option to renew- the landlord can charge whatever rent they
want.
● Even in assignment, it’s the same terms and conditions just assigned over to the new tenant.
Why is it important to recommend that the tenant obtains third-party legal advice?
●
●
●
●
Leases can be complex
Protect buyer
We do not have expertise in this field
Additional insurance coverage
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Why should you consider the following variables, when representing a client who is
buying/selling development land?
Considerations
Rationale
Considerations Rationale
Arable Land
The amount of land that is workable. Topography of the land
Soil
The best use of the land
What can be grown on the land
Bush
Types of trees , maple sugar bush,
how much area is available for farming, Managed forest tax
incentive program
Existing Buildings
condition of the building, building zoning, adding value to the
property, special use building
Creeks and sTreams
Topography, how run of nutrients are managed, Topography,
conservation
area, water supply
Quota
Marketing board approval, How much they are determined to
supply to the market to control the price at the sustainable level,
The higher the quota the higher the value. Quota can be sell
separately
Specialty Farms (e.g., Fruit,
dairy)
Types of farm, special farms are only used for specific needs such as apple
orchard can not be used for corn form, Income potential,
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Leased Land
How much per acre can it be rented for. Extra income for the property
How much land can be leased, lease types-
Zoning
What zoning is there, find out what are the possibilities in regards of zoning of
the land
Tile Drainage
What kind of drainage, may qualify for drainage loan, tiled land is more valuable
than untitled land
Farm Property Tax Reduction
Farm property may qualify for Farm property class type tax, what farm buildings
are there and how much land is taxable in this case.
Financing
Availability and source of financing (FCC -Farm Credit Corp)
Soil Testing
What kind of fertilizer was used and will be used, testing soil
needed to determine the future crop production (such as organic
farming.
Provincial Legislation
Farming and food production protection act protects farments
from nuisance and complaints
Why should you consider the following variables, when representing a client who is
buying/selling development land?
Considerations
Rationale
Considerations Rationale
Planning Act
Provincial act, plans how land can be used, may be used and developed such as
severance
Development
Assess the land for future potential development and intended uses. E.g. what I’ll
make from the build of 3 houses on the land analysing what I paid for the land
and what Price a house can be. A lot of moving elements in the Development
land area.
Sewage/StormWater/WaterHydr Availability of services can change the price of the land such as cost of bringing
o
services to the land. The distance to municipal services and what services will be
available, if any
Highest and Best Use
Trm use by the financier. Development land’s highest and best use can determine
the value of the property. Consider the factors that may affect the highest and
best use of the land.
Title Restrictions/Easements
These can limit the intended use of the land as well as impact the highest and
best use of land. Limitations may exist that may affect the intended use of the
property
Environmental
Environment may impact the development, use and affect adjacent property as
well as value of land
If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
Accessibility
E.g Acre behind the house has less accessibility to the land will impact and limit
the value of the land. Access may be limited and affect future development and
use
Brownfield
Brown field is a useful but contaminated land. This is in an area where services
and high motivation is available. Developers will be required to clean the
contamination based on their intended use.
Acoustics (rail, airport, road)
Proximity may impact future development and use of the land due to noise levels.
Acoustics noise can impact the price of the land and desirability of the land.
Public input
( not in my back yard phenomena) May influence future development and use of
th3e land. Public input is requested. It can stop, slow down the development. It is
positive for public to provide input but may not be for development plan
Subdivision/Severance Process
Must meet the requirements under section 50 of the planning Act
Financing Options
Options will be limited for vacant land sites and may have to seek alternative
methods (e.g., seller take back)
Adjacent Properties
Adjacent properties can impact the price negatively or positively. Environmental
conditions or a change in use of adjacent properties may affect future
development or use of the land
Places to Grow Act, 2005
Intended use of the land may be impacted by the Act.
 Brownfield – Federal Contaminated Sites Action Plan (FCSAP)
Why should you consider the following variables, when representing a client who is buying/selling a
business?
Why should you consider the following variables, when representing a client
who is buying/selling a business?
If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
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If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
Resources - Humber College
If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
I have created some questions to review math computations practiced during
Simulation Sessions.
**Note these are not questions from the assessment. I have created them or
took from simulation session 2 to practice as well as to give you an idea.
Assessment will have 46 Questions and 3 hours. Formulas will be given with
a notepad beside the calculator.
If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
1. A buyer is looking at purchasing a small three-storey office building with a total of 21 units: 19
leased and two vacant. The potential rental income for the building is $302,000 with a vacancy
and credit loss of 3%. There is no other income attached to the building. Total expenses for the
building are $120,000.
The buyer would like a Capitalization Rate (Cap Rate) of 8%. What purchase price would the buyer
offer to achieve their Cap Rate?
Remember 9 elements in the order - PRI, VR, ERI,
Other I, GOI, O Ex, NOI, CR, V
PRI - potential Rental Income
VR - Vacancy rate
ERI - Effective rental income
Other I - other Income
GOI - Gross operating Income
O Ex- Operating Expenses
NOI - Net operating Income
CAP R - Cap rate
Value -
Answer = $ 2,161,750
NOI / CAP R
If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
2. Your client recently entered in a lease contract. Now he found another favorable property to
buy. He is planning to assign his lease contract to someone. How would you explain the
assignment clause to your client ? Does he need landlord's consent? Who will be obligated to
landlord in the case of assignment of lease contract?
3. 1You are assisting a buyer client with the purchase
of a mid-size, 24-unit office building in the central
business district of Any City. After doing the initial
investigation and being satisfied with the results,
you have submitted an Agreement of Purchase
and Sale with the required Schedule A with all the
appropriate clauses and conditions. The seller has
accepted your offer by initialling and signing the
offer. After signing a confidentiality agreement, the
following information has been supplied.
The total base rent income per month is $1,300
per unit. There are no vacancies in the building so
no vacancy factor has been added. Seven of the
tenants pay an extra $30/month for one extra
parking spot each. The total expenses for the
property are 30% of the gross operating income.
Using the above information, what is the value of
the building if the capitalization rate is 5%
Answer - $ 5,276,880
4. The seller accepts the agreement sent
by your buyer for the ten-unti plaza that
has two vacant units. The buyer
receives and reviews all of the
appropriate documentation, which
includes the following information: Units
1,2 & 3 are 1,350 sq. ft. each and are
paying a base rent of $21.00/sq. ft. with
an additional $4.75/sq. ft. for TMI. Units
1
If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created from ideas from Simulation 2 booklets, posts from facebook, my notes and class discussions.
If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
4, 5 & 6 are 1,000 sq. ft. each and are paying $17.50/sq. ft. with an additional $5.35/sq. ft. for
TMI. Units 7 & 9 are 1,200 sq. ft. would have a potential rental the same as units 1,2 & 3. The
vacant units 8 and 10, which is 1,000 sq. ft., would have a potential rental the same as units 4,
5 & 6. There is no other income attached to the plaza.
The seller feels that a Cap Rate of 6% would be an attractive rate of return to an investor. In
this location, the vacancy rates for plazas is 2%. The seller has a non-recoverable expense of
$12,500/yr. What is the value of the building ?
Answer - 3,284,550
5. You are assisting a buyer client with the purchase of a mid-size, 24-unit office building in the
central business district of Any City. After doing the initial investigation and being satisfied with
the results, you have submitted an Agreement of Purchase and Sale with the required
Schedule A with all the appropriate clauses and conditions. The seller has accepted your offer
by initialling and signing the offer. After signing a confidentiality agreement, the following
information has been supplied.
The total base rent income per month is $1,300 per unit. There is 3% for vacancy and credit
loss. Seven of the tenants pay an extra $30/month for one extra parking spot each. The total
expenses for the property are 35% of the gross operating income. Using the above
information, what is the value of the building if the capitalization rate is 6.5%.
Answer - $ 3,656,880
If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
6. A buyer is looking at purchasing a small two-storey office building with a total of 12 units: 11
leased and one vacant. The potential rental income for the building is $152,000 with a vacancy
and credit loss of 3%. There is no other income attached to the building. Total expenses for the
building are $80,000.
The buyer would like a Capitalization Rate (Cap Rate) of 6%. What purchase price would the buyer
offer to achieve their Cap Rate?
Answer - $ 1,124,000
7. A buyer is looking at purchasing a small three-storey office building with a total of 21 units: 19
leased and two vacant. The total base rent income per month is $1,300 per unit with a
vacancy and credit loss of 3%. There is no other income attached to the building. Total
expenses for the building are $120,000.
what is the value of the building if the capitalization rate is 5%
Answer - $ 3,955,440
If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
8. Page 31 of Day 2
Keep in mind TMI is an expense that the owner is retrieving from the tenant. So TMI is not Landlord’s
income.
Answer: $ 1,808,200
If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.
9. Page 26 of Day 3
Your buyer has outgrown their current location and is seeking to expand their warehousing and
distribution of restaurant equipment. Now, with your help, they have located a three-acre
industrial property with a building that has a gross floor area of 20,000 sq. ft. They feel this
property would meet their current needs and would allow for future expansion of their
business. They ask you for an opinion of the value of the property. You do the research and
gather the following information: The industrial land values are estimated to be $4.95/sq. ft.
The hard and soft costs are $68/sq. ft. and $14/sq. ft., respectively. (1 acre = 43,560 sq. ft.)
Note - Cost Approach Land value + Soft costs + Hard costs
If you have any questions feel free to contact me ( Monika Sharda) at monika.sharda18@gmail.com
These notes are created using contents from Simulation 2 booklets, posts from facebook, my notes and class discussions.