Private Real Estate Investments

CFA Level II Alternative Investments
#1

While reviewing an answer in the CFA book, there was a statement that I could not get!

[question removed by moderator]

  1. how do we know that " The lease term for the anchor tenant is typically longer than the usual 3 to 5 year term for smaller tenants"

  2. Do not get how the sum of Property Management Fees and Other Operating Expenses equal the Expense Reimbursement Revenue?

  3. What does the “sum of Property Management Fees and Other Operating Expenses equal the Expense Reimbursement Revenue” mean?

#2

The curriculum says so: 2018 Level II, Volume 6, reading 43, p. 20, § 4.3.3.

$426,248 = $83,374 + $342,874

It means that:

$426,248 = $83,374 + $342,874

#3

Why do Property Management Fees and Other Operating Expenses equal the Expense Reimbursement Revenue? Why do they accentuate that and what does such information convey?

#4

It means those are operating expenses made on behalf of tenants, which they then reimburse (so you have those service charge expenses equal to the reimbursement revenue).

#5

but why?

#6

Because the lease agreement says that the tenants will pay those expenses.

#7

Hi, referring to your first question, we do not know it from the text of the question (probably this is confusing you). We just know (from the texts in the CFA books that in the US it is the usual practice - small tenants have lease agreements for 3 to 5 years, big on “anchor” have longer lease agreements.

Referring your second question, a the sum of Property Management Fees and Other Operating Expenses equal the Expense Reimbursement Revenue, this means that the tenants are responsible for those expenses, therefore the operating risk is not borne by the owner (what he/she has paid is reimbursed).