The ROE on a levered property investment should be:
a) ≤ ROA
b) ≤Yield debt
c) = R (cap rate)
d) ≥ ROA
Answer:
Why might a company decide to rent from a landlord rather than own its properties?
a) the company has limited access to capital
b) the company’s capital can be better applied to another use
c) the landlord may have access to capital at a lower rate than the company.
d) all of the above.
Answer:
Access to foreign real estate investing can be achieved through all of the following
except?
a) a global property fund
b) a cadestar
c) a partnership with local developer
d) publicly traded securities
Answer:
A retail tenant has a ten year lease with three rent steps:
What is the straight line rent and what will be the balance in the straight line receivable
account at the end of year 5 (per foot)?
SL Rent SL Receivable
A) 50 80
B) 41 0
C) 35 45
D) 41 35
Answer:
Which is not a government incentive used for corporate relocation?
a) loan guarantee
b) economic impact study
c) New Market Tax Credit
d) tax incentive financing
Answer:
Bluestone Office Park generates net annual cash flow of $220,000 in year one. The net
annual cash flow is estimated to grow at 5% per year over the next ten years. The bank
offers a 7% interest rate on a ten year loan with 25 year amortization. The initial loan
amount is subject to the tighter of a) 1.1x coverage test or b) 70% loan to value test.
Assume the property is always valued at 12x net annual cash flow. How much can be
borrowed? What is the actual loan to value at the end of year 5 and at the loan’s
maturity at the end of year ten?
Answer:
Which tranche takes the greatest risk in CMBS?
a) Residual
b) Senior
c) Subordinated
d) PSA
Answer:
Which characteristics are not shared by both partnerships and corporations:
a) limited liability
b) business association
c) centralized management
d) objective to carry on the business and divide the gains
Answer:
An office building has 10,000 square feet. Average rent is $20 per foot. Average
operating expenses are $10 per foot. The average expense stop is $6 per foot. Every
fifth year a 5,000 square foot tenant comes up for renewal and it costs $25 per foot to
replace the tenant (leasing commissions and tenant allowance). Non revenue generating
capital expenditures is $1 per foot per year. What is the stabilized pre tax cash flow?
a) $105,000
b) $65,000
c) $25,000
d) $5,000
Answer:
The purpose of a yield maintenance fee is to:
a) Protect the lender against prepayment risk
b) Protect the lender against rising interest rates
c) Maintain the lender’s yield on a loan if issuer credit changes
d) All of the above
Answer:
Recapture tax is paid if:
a) Land has appreciated
b) Sale price is greater than depreciated book value
c) Sale price is less than depreciated book value
d) None of the above
Answer:
Apex Office Building is a circa 1950 mid rise office building in a rapidly improving
commercial corridor in Big City. Which professional has the responsible for developing
a new competitive strategy for this property?
a) Portfolio manager
b) Asset Manager
c) Property manager
d) Commercial banker
Answer:
Which of the following is false?
a) Retail property demand is increased by rising consumer confidence
b) Hotel demand is decreased by rising corporate profits
c) Office demand is impacted by GDP growth
d) Multifamily demand is increased by job growth
Answer:
2) Which of the following is not a method typically used to value commercial property:
a) Comparable property
b) NPV
c) Adjusted NOI / Cap Rate
d) Multiple of after tax earnings
Answer:
Provisions protecting lenders during development include all of the following except:
a) Conversion
b) Completion Bonds
c) Title insurance
d) Holdbacks
Answer:
Which of the following in not a type of mortgage backed security?
a) Ginnie Mae Security
b) Balance Sheet Mortgage Loan
c) Mortgage pass through bond
d) Mortgage backed Bond
Answer:
Which of the following would not be used to finance for rent multifamily housing?
I)Construction financing
II)Mini Perm
III)Take out financing
IV)Inventory financing
V)End loans
a) IV, V
b) II,III
c) III,IV
d) I, V
e) I,II,III
Answer:
Which of the following measures is best utilized to compare leasing alternatives?
a) Base Rent.
b) Minimum Rent.
c) Average Rent.
d) Effective Rent.
Answer:
Which category of development costs is least likely to be funded by a construction
lender?
a) Interest carry cost
b) Hard costs
c) Land acquisition
d) Soft costs
Answer:
Capital gain tax is paid if:
a) Price improvement is greater than zero
b) Price is greater than depreciated book value, less than original cost
c) Price is less than depreciated book value
d) None of the above
Answer:
A terminal or reversion value is:
a) The tendency of property to decline in value over time.
b) The tendency of return on investment in any industry to revert to the average of all
industries.
c) The resale price of a property at the end of a financial projection.
d) Purchase price plus growth less depreciation.
Answer:
A property has NOI of $10 million, depreciation of $ 1 million and similar properties
trade at an 8% cap rates. What is the value of the property?
a) $80.0 million
b) $112.5 million
c) $125.0 million
d) $137.5 million
Answer:
The responsibility for the management of a real estate partnership rests with the:
a) limited partner
b) general partner
c) syndication
d) property manager
Answer:
Common land financing mechanisms include all of these except:
a) Purchase for cash
b) Down payment plus subordinated seller financing
c) Long-term debt
d) Down payment plus loan for a percentage of land value
Answer:
A limited partner in a real estate partnership:
a) Can only lose the amount they have invested
b) Can be forced to contribute additional capital
c) Can manage the affairs of a partnership
d) Is subject to entity level taxation
Answer:
Which is not a form of credit enhancement?
a) Monoline Insurance
b) Sequential Pay
c) Loan syndication
d) Overcollateralization
Answer:
Which risk is associated with falling interest rates?
a) Call risk
b) Environmental Risk
c) Extension risk
d) Default risk
Answer:
NOI minus Debt Service equals:
I) Cash Flow Before Taxes
II) Equity Dividend
III) DCF
IV) NPV
a) I, II
b) III, IV
c) I, III
d) II, IV
Answer:
Publicly traded REITs are subject to all of the following except
a) SEC disclosure requirements
b) Generally Accepted Accounting Principles
c) Special real estate principles
d) Exchange listing requirements
Answer:
All of the following are indicators of a strong regional real estate market except:
a) Broad industrial base
b) Access to transportation
c) Abundant natural resources
d) High unemployment
Answer:
Substantial economic effect does not require
a) pro rata allocations
b) allocations that are reflected in capital accounts
c) liquidations in accord with capital accounts
d) restoration of deficit capital accounts
Answer:
Tenants are constantly complaining that the temperature in the office building is either
too hot or too cold. Which type of engineering firm should the owner call in order to see
if the HVAC design is correct?
a) Environmental
b) Civil
c) Mechanical
d) Bio Medical
Answer:
Landlords can supply which incentives for corporate relocation?
i) job creation tax credit
ii) access to lower cost capital
iii) moving allowance
iv) tenant allowance
v) lease buy-out
a) i,ii,iii
b) ii,iii,iv,v
c) i,iii
d) ii,iv
Answer:
Jeff’s Investment Firm is currently paying $15 per foot in annual gross rent. Jeff’s
Investment Firm is renting 5,000 square feet. Jeff has the option to renew his lease for a
three year term at a 5% rent increase. What is Jeff’s new annual payment to the
landlord?
Answer:
Collateral Pool
Ten loans, each with an original principal balance $10 m. All loans are 4% 7 year
commercial mortgages and were originated on January 1, 2010 with 20 year
amortization schedules.
What is the weighted average interest cost of the securitization?
Answer:
Fred and Wilma have just bought a nice new home on Rockaway Beach on January 1st.
They financed their home with a $100,000 15 year 5% mortgage. This will be the
second year of their mortgage. How much interest will they pay to their bank?
Assuming their marginal tax rate is 35% what is their after tax interest rate?
Answer:
Dewie Cheatham and Howe (DCH), a local CPA firm, has a gross lease on 10,000
square feet of space in a suburban office building. The lease is now at the end of its first
term. It has a renewal option for an additional term that calls for the new rent to be set
at the old rent plus an adjustment for the change in the CPI. The CPI Index was at 106.9
at the beginning of the lease term, it is now at 125.4. The original rent was $10 per foot.
What is the renewal rent?
Answer:
In the event that DCH does not renew its 10,000 square foot lease we will need to
release the space. DCH has been in the space for 15 years and it will need a complete
interior renovation. This will cost $25 per square foot. It will also cost 3% of the total
rent for the new tenant’s first term as a leasing commission. What will it cost to release
the lease the space to a new tenant for a five year term at a $20 per square foot rent
level?
Answer:
A joint venture partner comes approaches who offers $25m for a 40% share of the
equity. The partner is a pension fund and would like a convertible preferred stock that
pays a 6% dividend and converts into a 40% ownership interest at the end of a seven
year hold period.
Answer:
Dr. Pearl E. White DDS is opening a new dental office on the first floor of Mayberry
Mall. Dr. White has agreed to a ten year lease with a $25 per square foot starting rent.
The rent steps to $30 at the end of the third year and to $35 at the end of the sixth year.
What is the straight line rent per foot for Dr. White’s office?
Answer:
Jon’s Law Firm agrees to pay $20 per foot in annual gross rent. Expenses are $5 per
square foot. Jon’s Law Firm is renting 10,000 square feet. Including expenses, what is
Jon’s annual payment to the landlord?
Answer:
A property generates $100,000 in net annual cash flow. The lender requires debt service
coverage of 1.25 times on a ten year interest only loan at an 8% annual rate. How much
can be borrowed on this property?
Answer:
Science City Industrial Park has 2,000,000 square feet of flex space. NOI for the asset
has averaged $20,000,000 per annum. In each of the next five years management
expects to spend $0.50 per square foot on non-revenue generating capital expenditures.
What is our forecast for adjusted NOI.
Answer:
Little John Investors owns a 30,000 square foot big box store on a triple net lease to
King Size Lots. The property is subject to a ten year 7% interest only loan with an
original principal amount of $5 million. This loan has 8 years to maturity. The bank has
offered the group a new ten year loan with proceeds equal to the old loans outstanding
balance at 5% requiring 25 year amortization. If maximizing annual cash flow for
distribution is Little John’s only criteria should they take the new loan?
Answer:
Bobby’s Bar B Q Shack is a rapidly expanding chain of fast and casual restaurants. The
chain currently owns ten locations. Each location costs $5 million to build and
generates a stabilized operating profit of $ 1 million per year. The company would like
to build 20 more over the next year and assumes its costs will remain the same. Bobby
has been offered a $75 million three-year bank line of credit at 10% and a $75 m three
year 6% convertible mortgage. The convertible mortgage allows the holder to convert
$25 million of principal into a 20% interest in the company. The market values
companies like Bobby’s at 10 times unit operating profit. Which financing is better?
Answer:
You can no longer service your loan on Bluestone Park (9). You use your own cash to
support the deficit on the property. At the end of year six you are out of cash and
approach the bank for a workout. The bank offers to suspend amortization payments
and lowering the interest rate by 1% to 6%. Does this help?
Answer:
East REIT
Income Statement
(for period ending December 31, 2010, in millions)
Balance Sheet
(as of December 31, 2010, in millions)
The debt is interest only with a 5% coupon rate. There are ten million shares
outstanding. The shares trade at $80 per share.
Calculate FFO
Revenue Expenses G&A Interest
Answer:
Newco Real Estate owns a 100,000 square foot strip shopping center in New Jersey.
The center is valued at $20,000,000. Security expenses are $50,000 per year;
maintenance costs average $300,000 depending on snow fall. Insurance is $50,000 and
administration is $20,000. Next year the center will need a new roof at an expected cost
of $1,000,000. Annual Real Estate taxes are currently 2% of value. What are the annual
operating expenses for the center per square foot.
Answer:
Jon has just moved his law firm into new space in Highrise 100 a relatively new class A
office building. Jon has agreed to a five year $50 per square foot rent with a $10
expense stop (set at expected expense level for year one). In the recent past, expenses at
the property have been increasing at 6% per annum. If future expenses continue at the
same rate of increase what will Jon’s total cost of occupancy per square foot be in the
last year of his lease?
Answer:
Over the next four years, Gateway Towers has 40,000 square feet of leases rolling at
flat rents. The owner’s predict that tenant allowances on new leases will total $25 per
square foot. The property expects to have NOI of $3,000,000. What is adjusted NOI for
this asset?
Answer:
You make $50,000 per year and you want to buy a home that costs $250,000. The bank
says that you can qualify for a traditional 30 year 7% mortgage at 80% loan to value if
the debt service is less than 25% of your monthly pretax income. Do you qualify?
Answer:
Greentree Park is a 10 building office park outside of Cleveland, Ohio. The property is
valued at $100 million. Bankers have proposed a first mortgage with an LTV of 55%. A
financial services firm has offered a mezzanine loan to take the property up to a 75%
LTV. How much equity will be required from the owners in order to complete the
purchase.
Answer:
