Which of the following is a characteristic of operational risk?

Operational risk is fundamentally connected to the internal processes and management practices of an organization. Poor property management practices can significantly impact the performance and profitability of real estate investments. This risk often arises from failures in operational systems, staff deficiencies, or inadequate procedures, which can lead to financial losses or reputational damage within a real estate context.

In contrast, fluctuating interest rates, shifting tenant demographics, and changing zoning laws are typically categorized as market or external risks. Fluctuating interest rates primarily affect financing costs and investment returns, shifting tenant demographics relate to broader market trends affecting demand, and changing zoning laws involve regulatory factors impacting property use and development potential. These are vital considerations in real estate investment but do not fall under the realm of operational risk that stems from how a property or portfolio is managed and operated on a day-to-day basis.