Evaluating Commercial Leases: The Tenant and the Terms Both Matter

This 7-hour seminar introduces participants to how the terms of a lease and the risk profile of the tenant influence the valuation of commercial real estate. Participants will see how the business features of commercial leases affect the quantity and the duration of the income stream that a property will generate and the development of the property’s income statement. Non-traditional sources of income, the proper period to use in measuring the income, measuring the real vacancy rate, expenses that might not be recoverable by a landlord if a CAM formula is incorrect, and how other special clauses in a lease can all affect the property’s income stream will be examined. The second part of the seminar discusses tenant credit risk issues and explains why understanding a tenant’s financial strength is key to assessing the quality of the income stream.

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• Appraisers
• Lenders
• Brokers
• Other market participants involved in the valuation of commercial real estate

• Recognize tenant credit risk.
• Identify lease terms that affect risk.
• Identify key lease clauses that affect risk.
• Recognize the strength of the guarantor.
• Identify four Cs of credit analysis.
• Recognize how the market treats vacancy and collection loss in forecasting NOI for credit deals.
• Identify various approaches to estimating credit loss allowance.
• Recognize the effects of contract rent versus market rent relative to risk.
• Recognize renewal risk and renegotiation risk.

None

No Exam

Basic/Intermediate

Attend: 75 AI Points

7 hours

No

Table of Contents and Overview
Seminar Schedule

• A financial calculator is required. The accepted model used in the program is the HP-12C. AI education programs that require a financial calculator are developed with HP-12C keystrokes; using this model is highly recommended.
• You must be familiar with calculator operation when the program begins. Do not enroll expecting to be taught how to use a financial calculator.
• Free Review: Using a Financial Calculator: Formulas, Symbols, Math Review, and Sample Problems; and Financial Calculator Practice Exercises.
• For additional help with the HP-12C calculator, take our online seminar Using Your HP-12C Financial Calculator.
• HP-12C calculator User’s Manual.

None specified

Seminar Materials Include:

• Seminar Handbook (197 pp.)
• Pre-Class Memo (1 p.)

• Appraisers in Arbitration
• Valuation of Office Properties
• The Appraisal of Real Estate, 15th ed.
• The Dictionary of Real Estate Appraisal, 6th ed.