Page 1 of 86
RECA COMMERCIAL UNIT2 300 QUESTIONS AND
VERIFIED 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) ......ANSWER........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
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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 ......ANSWER........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 ......ANSWER........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)
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3 miscellaneous product types ......ANSWER........hotel, leisure (e.g.
golf courses), and special use (e.g. casinos).
Categorization by Building Class ......ANSWER........For example,
office properties are often categorized as Class A, B, or C.
Categorization by Number of Storeys ......ANSWER........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
......ANSWER........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 ......ANSWER........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) ......ANSWER........The real
estate asset's product type
The size and complexity of the project
The regulatory environment
The need for related infrastructure
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The financial and operational capability of the investor(s)
A typical commercial real estate asset undergoes three phases
during its life cycle: ......ANSWER........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) ......ANSWER........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. ......ANSWER........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.
RECA COMMERCIAL UNIT2 300 QUESTIONS AND
VERIFIED 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) ......ANSWER........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
,Page 2 of 86
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 ......ANSWER........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 ......ANSWER........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)
,Page 3 of 86
3 miscellaneous product types ......ANSWER........hotel, leisure (e.g.
golf courses), and special use (e.g. casinos).
Categorization by Building Class ......ANSWER........For example,
office properties are often categorized as Class A, B, or C.
Categorization by Number of Storeys ......ANSWER........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
......ANSWER........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 ......ANSWER........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) ......ANSWER........The real
estate asset's product type
The size and complexity of the project
The regulatory environment
The need for related infrastructure
, Page 4 of 86
The financial and operational capability of the investor(s)
A typical commercial real estate asset undergoes three phases
during its life cycle: ......ANSWER........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) ......ANSWER........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. ......ANSWER........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.
