Hey everyone! So the second week of my time at Churchill has come to a close, and I think I love it even more. I made my own breakfast on Friday morning (which means I cracked an egg over a pan and panicked internally as I watched it cook) and have increased my amount of adultness (this still isn't a word). Here's some proof of my being-an-adult (I will settle on a term for this eventually):
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| Fig. 1: My desk |
1) Capitalization rates, to put in the simplest way possible, are basically the rate of return on a real estate investment. They help interested parties understand the future value of a property, given that they choose to invest in that property.
2) It's really hard not to go have Taco Bell for lunch every day.
3) Making a loan request is a longer process than I previously thought.
This week, I filled out two more parts of a loan request: rent rolls and operating history. I worked mostly on a deal for an office building in Scottsdale and a retail center in Sun City. With regard to the office building, I've seen that there are so many things that go into the creation of a sales comparable list; it's not sales price, but actually price per square foot, that counts. We have to look at over square footage, number of parking spaces (who knew that parking spaces were that important? Actually, I guess I did, given the amount of struggle we've seen with the parking lot at the old campus), land space, type of building (there's regular office building, but in this specific case, there are also flex buildings, which, as far as I understand, include warehouse space), number of floors, sale date, and probably more that I can't name off the top of my head. Sales comparables are meant to provide a basis for expectations in the sale of a property of interest, like whether they're getting a good deal and what they could see as time passes.
As for the retail center, I've learned that rent, while important, isn't the only thing that goes into calculating the profits and costs of operating a property. There's the obvious utilities and maintenance, but there's also taxes, security, insurance, and much more. Negotiations often have to be made between tenants and landlords as to who has to pay what. However, every cost seems to be variable so far (which explains why, if we take a look at economic market curves, we never really take into account average fixed cost. It doesn't matter that much, because I have not seen a single cost that hasn't changed over time), including rent. There's an entire separate spreadsheet to be filled out that accounts for increases in rent over time (also known as Bumps). Taxes change based on location and period of time, and it seems that market conditions play a small role in the amount of taxes paid. For the retail center, I saw that taxes were lower in 2008, around the time of the recession, as compared to a year ago, when the real estate market was doing much better.
In a nutshell, nothing is really static. As I continue to gain an understanding of all of the different factors of real estate (and how Churchill is essentially a one-stop shop for all of the information a lender or a borrower could possibly need), I can also see how market conditions and economic principles serve as a foundation for so many aspects.
Thanks for reading, and see you next week!
