What follows is a general discussion of the link between lease provisions and how investors
in income-producing real estate develop statements of cash flow. These statements are very
important as they serve as a basis for estimating real estate values and performing an
investment analysis. These statements reflect(1) lease terms,(2) market supply and demand
conditions affecting rents,(3) the tenant’s credit risk, and(4) how responsibility for certain
expenses associated with operating a property will be divided between the property owners
and tenants. As has been described, lease terms vary considerably for apartments, office
buildings, retail properties, and warehouses. Differences in lease terms must be translated
and models must be developed into statements of cash flow in order to assess investment risk
and return for investment opportunities.