BOMA Lease Administration & Finance 2 — Questions and Answers
Question 1: What is a 'CAM reconciliation' in commercial lease administration?
- Annual true-up comparing estimated CAM payments to actual expenses incurred (Correct answer)
- A review of common area maintenance work completed during the year
- Monthly billing adjustment for common area maintenance changes
- A landlord audit of tenant-reported sales for percentage rent leases
Correct answer: Annual true-up comparing estimated CAM payments to actual expenses incurred
CAM reconciliation is an annual process where actual common area maintenance expenses are compared to the estimates paid monthly, with tenants paying or receiving credits for the difference.
Question 2: What does 'percentage rent' mean in a retail lease?
- Additional rent paid when tenant's sales exceed a specified breakpoint (Correct answer)
- Rent calculated as a percentage of the total building's gross income
- A rent escalation tied to a percentage of the Consumer Price Index
- Landlord's percentage share of tenant improvement costs
Correct answer: Additional rent paid when tenant's sales exceed a specified breakpoint
Percentage rent requires the tenant to pay additional rent equal to a percentage of their gross sales above a natural or artificial breakpoint.
Question 3: Which financial metric is most commonly used to value commercial income-producing properties?
- Capitalization rate (Cap Rate) applied to Net Operating Income (Correct answer)
- Price per square foot compared to recent comparable sales
- Gross rent multiplier based on annual gross rents
- Discounted cash flow analysis using 10-year projections
Correct answer: Capitalization rate (Cap Rate) applied to Net Operating Income
The Cap Rate method, dividing Net Operating Income by the cap rate to arrive at value, is the most widely used method for valuing commercial income properties.
Question 4: What is 'Net Operating Income' (NOI) in commercial real estate?
- Effective gross income minus all operating expenses, before debt service (Correct answer)
- Total rental income minus property taxes and insurance only
- Net income after all expenses including mortgage payments
- Gross potential rent minus vacancy and credit loss
Correct answer: Effective gross income minus all operating expenses, before debt service
NOI is calculated as effective gross income (actual collections) minus all operating expenses, but before deducting debt service (mortgage payments) or capital expenditures.
Question 5: What does a 'co-tenancy clause' in a retail lease protect the tenant against?
- The loss of an anchor tenant or a specified number of co-tenants in a shopping center (Correct answer)
- Competing tenants in the same shopping center selling similar merchandise
- Landlord leasing to tenants who do not meet the center's quality standards
- Changes in the shopping center's ownership that affect tenant operations
Correct answer: The loss of an anchor tenant or a specified number of co-tenants in a shopping center
A co-tenancy clause allows a tenant to pay reduced rent or terminate the lease if a key anchor tenant or minimum occupancy level is not maintained.
Question 6: In lease administration, what is the purpose of a 'lease abstract'?
- A summary document extracting key lease terms for quick reference and administration (Correct answer)
- A legal filing that registers the lease with the local land records
- A document certifying that tenant improvements meet code requirements
- A standardized form used to compare competing lease proposals
Correct answer: A summary document extracting key lease terms for quick reference and administration
A lease abstract summarizes all critical lease terms (dates, rent, options, restrictions) in a standardized format for efficient lease administration and portfolio management.
BOMA Lease Administration & Finance 2
What is a 'CAM reconciliation' in commercial lease administration?