Projecting a lease-up year for a half-empty building, the appraiser must recognize that fixed expenses:
Correct Answer
C) Continue largely unchanged regardless of occupancy level
Why this is correct: As the original explanation notes, fixed expenses (like property taxes, insurance, and some administrative costs) are largely independent of occupancy levels. They must be paid regardless of whether the building is full or vacant, which significantly impacts cash flow during lease-up. Why the other choices are wrong: 'Are paid by the tenant rather than the property owner' describes reimbursable expenses in some net leases, not a universal rule. 'Change directly in proportion to the building's occupancy' describes variable expenses (like some utilities). 'Occur only once during the entire holding period' describes capital expenditures, not operating expenses. Exam tip: In a lease-up projection, fixed expenses remain constant; variable expenses rise with occupancy.
Why This Is the Correct Answer
Why this is correct: As the original explanation notes, fixed expenses (like property taxes, insurance, and some administrative costs) are largely independent of occupancy levels. They must be paid regardless of whether the building is full or vacant, which significantly impacts cash flow during lease-up. Why the other choices are wrong: 'Are paid by the tenant rather than the property owner' describes reimbursable expenses in some net leases, not a universal rule. 'Change directly in proportion to the building's occupancy' describes variable expenses (like some utilities). 'Occur only once during the entire holding period' describes capital expenditures, not operating expenses. Exam tip: In a lease-up projection, fixed expenses remain constant; variable expenses rise with occupancy.
More income-approach Questions
In a percentage lease, rent is commonly structured as:
Escalation clauses and expense stops in a lease matter to the income analysis because they:
In a DCF, what is the reversion?
Potential gross income differs from effective gross income in that PGI assumes:
The reversion in a discounted cash flow model represents:
Two identical buildings differ only in risk: one has a single tenant on a short lease, the other five tenants on staggered terms. How do their cap rates compare?
Contract rent on a leased office is $30 per sq ft; market rent is $26. The $4 difference is called:
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An appraiser is analyzing a 15-unit apartment building. Market research indicates a 6% vacancy rate is typical for similar properties, but this property's historical vacancy has averaged 4%. The subject has experienced a 1% collection loss (uncollectible rents) over the past two years. When estimating effective gross income for the subject, what vacancy and collection loss percentage should the appraiser apply?
An overall rate extracted from a sale whose NOI excluded reserves, applied to a subject NOI that includes them, will:
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