November 23, 2008
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What Is Institutional-Grade Real Estate?
Real property investments that are sought out by
institutional buyers and have the capacity to meet
generally prevalent institutional investment criteria. An
in-depth discussion of this topic was published in the
Second Quarter 1994 issue of the Investor Survey.
What Is
an IRR?
An internal rate of return (IRR) is the discount rate in
an all-cash transaction; it is based on annual year-end
compounding calculated on a pretax basis.
What Is
an Overall Capitalization Rate (OAR)?
An overall cap rate is the initial rate of return in an
all-cash transaction; formerly termed the free and
clear equity cap rate in the Investor Survey.
An OAR is also sometimes referred to as a
"going-in" cap rate.
Which Income Do Investors Capitalize In
Direct Capitalization?
Investors capitalize either (1) NOI after capital
replacement reserve deduction but before TIs and leasing
commissions; (2) NOI before capital replacement reserve
deduction, TIs, and leasing commissions; or (3) cash flow
after capital replacement reserve deduction, TIs, and
leasing commissions.
Is the
Capital Replacement Reserve Included in NOI?
Some investors include the capital replacement reserve in
NOI. Others do not. Survey participants report on this
each quarter, and survey results are printed in the Investor
Survey periodically.
What
Is a Reserve?
A reserve is a dollar amount allocated for periodic
replacement of building components during a
property’s economic life.
What
Vacancy Assumptions are Used in DCF Analysis?
The vacancy assumptions used in DCF analysis are
1. Months Vacant, the number of months a space remains unleased at the expiration of a vacating tenant lease
2. Tenant Retention, the percentage of leased rentable area that is expected to be re-leased by the existing tenants at lease expiration
3. Underlying Vacancy/Credit Loss, the percentage of total revenue uncollected due to unexpected vacancy or credit loss (in addition to any rent loss from vacancies at lease expirations)
How
are Regional Malls Classified?
Regional malls are classified as A, B, C, or D space based on inline retail
sales per square foot:
| Class | Inline Retail Sales PSF |
| A+ | $400 and up |
| A | $300 to $399 |
| B+ | $250 to $299 |
| B | $200 to $249 |
| C+ | $150 to $199 |
| C | $100 to $149 |
| D | less than $100 |
What Is
The Korpacz Yield Indicator (KYI)?
The KYI is the composite IRR average of the
commercial markets included in the Investor
Survey; does not include the hotel markets
or the development land market.
What Is
The Korpacz Dividend Indicator (KDI)?
The KDI is the composite OAR average of the
commercial markets included in the Investor
Survey; does not include the hotel markets
or the development land market.
What
Is Marketing Time?
The period of time between the initial offering of a
property for sale and the closing date of the sale.
Which
Types of Retail Outlets Are Included in the National
Strip Shopping Center Market?
Neighborhood and community centers.
What
Is a Forecast Period?
Time in years for projection of anticipated cash flow
benefits for discounted cash flow analysis.
What
Is a Change Rate?
Annual compound rate of change.
What
Is Market Rent?
Achievable current rent if vacant.
What Is
a Residual?
Estimated total price at conclusion of forecast period.
What Is a Residual Cap Rate?
Overall capitalization rate used in calculation of
residual price.
What
Is Selling Expense?
Transaction expenses (legal, brokerage, marketing, etc.)
paid by the seller.
What Is a Full-Service Hotel?
Hotel with restaurant and lounge facilities, meeting
space, and a minimum service and amenities level;
moderate to lower upper-tier pricing; includes all-suite
hotels.
What
Is an Economy/Limited-Service Hotel?
Hotel with "rooms only" operation and no food
and beverage other than possibly a continental breakfast;
economy-oriented with lower-tier pricing.
What Is
a Luxury Hotel?
High-quality hotel offering personalized guest services, typically with
extensive amenities; upper-tier pricing; includes four- and five-star
resorts.
What Is
a Extended-Stay Hotel?
Hotel with rooms that generally include work stations with two-line phones,
access to fax machines; mid- and upper-price hotels include kitchenettes,
separate lounging areas; weekly rates.
What Is Included in Hotel Operating
Expenses?
The ongoing expenditures incurred during the ordinary
course of business necessary to maintain and continue the
production of gross revenues, not including reserves,
debt service, and capital costs.
What Is
the Gross Rooms Revenue Multiplier (GRRM) in Hotel
Valuation?
The relationship, or ratio, between sale price and gross
rooms revenue.
What
Is a Hotel Management Fee?
An expense item representing the sum paid for or the
value of management service, excluding incentives,
expressed as a percentage of total revenues.
What Is
a Reserve for Replacement of Fixed Assets in Hotel Valuation?
An allowance that provides for the periodic replacement of building components,
and furniture, fixtures, and equipment, which deteriorate and must be
replaced during the building’s economic life.
What Is
RevPAR?
Revenue per available room
What Is
a Sale-Leaseback Transaction?
A transaction in which an owner sells a building that they fully occupy
and then leases the space back from the buyers.
What Is
a 1031 Exchange?
A tx code that allows the sellers of an investment property to defer capital
gains tax by exchanging the sale proceeds for an investment in either
a similar property or properties within 180 days of the original closing.