Commercial Real Estate
Investing 101
NOTES
INSTRUCTOR: JUSTIN KIVEL
Contents
Introduction.................................................................................................................................................1
Product Types – Retail.................................................................................................................................1
Key Terms – Retail...................................................................................................................................1
Strip Centers............................................................................................................................................1
Neighborhood Shopping Centers.............................................................................................................2
Power Centers.........................................................................................................................................2
Regional Malls.........................................................................................................................................2
Introduction
Scope of the course:
Commercial real estate product types – what they are made up of
- Retail properties
- Office buildings
- Multifamily
- Industrial – warehouses
- Hotels
- Other product types
Commercial lease structures
- How commercial leases are structured from an economic point of view
- How the structure of a commercial lease affects financial projections, underwriting and
financial modelling of a new real estate deal.
CRE revenue drivers
- How commercial real estate properties generate revenue for ownership - not just from a
rental income point of view but also from ancillary or other income sources
- How to incorporate revenue drivers in commercial real estate financial analysis for each
product type
CRE expense drivers
- What drives expenses at commercial real estate properties
- How to make a CRE investment more profitable by managing certain expense drivers
CRE capital items
- How to calculate capital items such as tenant improvement allowances, construction
costs and leasing commission
- How these items are to be incorporated in CRE financial analysis – their effect on
economics and financials
Institutional-level financial analysis
- How financial institutions of different sizes assess CRE deals – the metrics evaluated
- How to calculate these metrics – Excel based models
- CRE property valuation based on these metrics
CRE private equity return metrics
- IRR
- Equity multiple
- Cash on cash return
- Other equity returns metrics
Tax benefits of investing in CRE
Waterfall and promote structures
Product Types – Retail
Key Terms – Retail
Anchor tenant
- The main tenant at a retail property that draws most of the foot traffic to the retail
center
- Other smaller stores benefit from the foot traffic drawn by the anchor tenants
- Examples: grocery stores, supermarkets, movie theatres, etc.
In-line tenant
- The smaller tenants that benefit from the anchor tenants’ presence – provide ancillary
products and services
- Generally smaller square footage footprints than anchor tenants
Gross leasable area (GLA)
- Aggregate square footage of the retail property
- Important to distinguish from Net Leasable Area (NLA) - actual square-unit of a retail
property that may be leased or rented to tenants, the area upon which the lease or
rental payments are computed. It usually excludes common areas, elevator shafts,
stairways, and space devoted to cooling, heating, or other equipment
CAM reimbursement structures
- CAM – common area maintenance
- Common area is the space with no tenant – shared by all tenants
- Services associated with maintaining the common area – janitorial, cleaning, repair and
maintenance
- In many retail properties, those tenants that occupy the building are responsible for
reimbursing the landlord for the expenses related to maintaining that common area –
CAM reimbursements
Strip Centers
1,000 – 10,000 SF
- 7-8 tenants, depending on size
Open-air shopping center
- No enclosed walkways, hallways as seen in malls
- CAM charges related to parking lot and sometimes for maintenance of the structure
itself
Stores arranged in a row
- Straight line, “L” or “U” shape
Neighborhood Shopping Centers
Power Centers
Regional Malls
