Which are the key metric used to determine a buyers ability to afford a home purchase?
I) monthly gross income
II) real estate taxes
III) Insurance costs
IV) Available down payment
V) outstanding credit card debt
VI) current interest rates
VII) price of the home
VIII) student loans
a) I, IV, VI, VII
b)I, II, III, IV, VI, VII
c) all except VIII
d) all of the above
Answer:
Shoppers Paradise, a major retailer, has excellent locations and owns its stores subject
to mortgage financing. There is a new competitor, Buyers Heaven, and the company
requires capital to renovate its stores? Which is the best strategy for Shoppers Paradise
to use?
a) Approach its landlord for tenant allowances
b) Approach its bank for a secured credit line
c) Enter into a sale leaseback transaction
d) Ask the local government for property tax abatements
Answer:
The primary risk to the purchaser of a MPT containing GNMA securities is:
a) Early prepayment
b) Default risk
c) Over commitment of GNMA backstop funds
d) Problems with subprime loans
Answer:
Which of the following is true regarding economies that are heavily dependent on a
single industry?
a) Economic growth is slower than average
b) Economic growth is faster than average
c) Economic risk is higher than in diverse economies
d) Economic risk is lower than in diverse economies
Answer:
Negative leverage exists when:
a) ROA > Cap Rate
b) ROA > Cost of Debt
c) ROA > Cost of Equity
d) ROA < Cost of Debt
Answer:
Which is the proper accounting for a mortgage payment?
a) Debit: Cash, Credit: Debt Service
b) Debit: Debit Service, Credit: Cash
c) Debit: Interest Expense and Mortgage Principal, Credit: Cash
d) Debit: Cash, Credit: Interest Expense and Mortgage Principal
Answer:
Which of the following participants has unlimited financial responsibility for the affairs
of a real estate partnership?
a) limited partner
b) general partner
c) syndicator
d) property manager
Answer:
What is a step up on death?
a) Free pass though the pearly gates
b) Increase of basis to fair market value
c) Increase in estate taxes for family members
d) Improvement to property management after founder’s death
Answer:
Climate, natural features, natural resources and availability of water and power are
examples of factors that determine a country’s
a) economic advantage
b) cost of living
c) level of immigration
d) political system
Answer:
A real estate company has an opportunity to acquire a large portfolio of hotels located
along the eastern seaboard. The acquisition will require many different types of
financing and sophisticated structuring advice. Which financial institution is best suited
to this task?
a) Commercial Bank
b) Investment Bank
c) Mortgage Broker
d) None of the above
Answer:
The cost approach to valuation is based on:
a) Historical cost less depreciation.
b) Historical cost.
c) Replacement cost.
d) Replacement cost less depreciation.
Answer:
Introducing new business practices to a market is called X and generates Y
i) market transparency
ii) first mover advantage
iii) technology transfer
a) i,iii
b) i,ii
c) ii,iii
d) iii,ii
Answer:
The pay rate ________ exceeds the interest rate in a negative amortization loan.
a) never
b) always
c) sometimes
d) not relevant
Answer:
Which is not a risk associated with mortgage lending?
a) Obsolescence
b) Interest rate change
c) Default
d) Prepayment
Answer:
Funds available for distribution is primarily an indicator of
a) ability to cover interest payments
b) ability to cover common dividends
c) ability to finance property development
d) ability to issue new equity
Answer:
Jon intends to build a new convenience store on a property and operate it until he retires
in 25 years. Each month he will pay fee to his landlord for the use of the land. At the
end of the period he will no longer own either the land or the building. What type of
interest does Jon have in the property?
a) Fee Interest
b) Easement
c) Leasehold
d) Syndication
Answer:
Which of the following is not an appraisal method?
a) Sales comparison approach.
b) Income capitalization approach.
c) Distressed seller approach.
d) Cost approach.
Answer:
Which is not a type of development financing?
a) FAR
b) Construction loan
c) Take-out loan
d) Mini-perm
Answer:
Which of the following apartment types is typically constructed on high cost land?
a) Low-Rise
b) Garden
c) Mid-rise
d) High-rise
Answer:
At the end of a partnership, capital account balances must be brought to
a) zero
b) amount of original cash investment
c) sum of all cash distributed
d) 10%
Answer:
The Real Estate and Construction industries bring all of the following benefits to the
US economy except:
a) Job creation for American workers
b) Stability for the economy
c) Modern infrastructure for industry
d) Store of value for investors
Answer:
Securities issued by the following financial institution are guaranteed by the full faith
and credit of the US government:
a) Freddie Mac
b) Ginnie Mae
c) Fannie Mae
d) Sallie Mac
Answer:
The amount owed by a borrower minus the foreclosure proceeds equals:
a) Equity of Redemption
b) Deficiency Judgment
c) Junior Lien
d) Conveyance Proceeds
Answer:
In many cases, new housing developments require additional infrastructure. Who pays
the cost of building and supporting the infrastructure?
a)Developers
b)Homebuyers
c)Government
d)All of the above
Answer:
LEED is a rating system for buildings and includes all but one of the following criteria:
a) conservation of energy and water and
b) improved property net operating income
c) improvement of health and safety for occupants
d) reduction of greenhouse gasses and landfill waste
Answer:
Which of the following is not a particular risk of international investing?
a) Geopolitical
b) Seismic
c) Currency
d) Nationalization
Answer:
Good sources of real estate market information include?
a) Economic development officers
b) Regional planning officers
c) Bankers and real estate lawyers
d) all of the above
Answer:
Which clause allows a buyer to keep the seller’s mortgage in place?
a) Assignment Clause
b) Assumption Clause
c) Due on Sale Clause
d) Acceleration Clause
Answer:
Which of the following in not an entity involved in supporting the home mortgage
market?
a) Ginnie Mae
b) Fannie Mae
c) Freddie Mac
d) Sallie Mae
Answer:
Which of the following is not involved in land registration?
a) title
b) repatriation
c) deed
d) survey
Answer:
The owners of the Centre at New Hope purchased the property at the end of 2002.
Adjusted NOI for 2003 was projected at $4 million and expected to rise at 5% per
annum over a seven year hold period. The property was purchased at a 9% cap rate
based on 2003 adjusted NOI. The owners expect that they will be able to sell it at the
end of the holding period at an 8% cap rate. Can the owners achieve a 10% return?
(Assume the owners are tax exempt)
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 interest coverage
Answer:
Place these claims in order of seniority:
I. First Mortgage
II. Common Equity
III. Mezz Debt
IV. Preferred Equity
a. I,II,III,IV
b. IV, II, III, I
c. I, III. IV, II
d. III, I, IV, II
Answer:
The property is sold at the end of one year and one day for $21 m. Upon sale, original
equity is returned pro rata if available. Excess proceeds are split pro rata until each
party receives a cumulative return of 12%. The GP is then entitled to a 30% share
Answer:
What taxes are payable by the GP and the LPs? Assume an income tax rate of 35%, cap
gains tax rate of 15% and recapture tax of 25%.
Answer:
The Green Family had owned the Stormy Ridge Lodge for 15 years prior to selling it in
2009. They purchased the property for $45 million and then sold it for $42.5 million.
Allocate 20% of the purchase price to land. Were the Green’s liable for paying recapture
tax and if so for what amount?
Answer:
The lender’s credit committee believes that no loan should be made at a loan to value
ratio above 65%. Assume that the bank values the property at 10 times cash flow. Can
the borrower in number (6) borrow the full amount of proceeds available assuming the
coverage test of 25%?
Answer:
In example 3, 20% of the equity was invested by the GP and 80% by the LP. Each year,
each party is entitled to a pro rata split of funds available for distribution until a 10%
return is achieved. The GP is then entitled to a 30% share.
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.
A single mortgage loan defaults at the end of year four. How much interest does the B
trance earn in year five.
Answer:
Second Bank comes in with a $180 m 7 year floating rate loan proposition with a 20
year amortization schedule. The 7 year treasury is currently 3.0%. The swap premium
to fix the loan is 1.0%. The loan spread is 250 basis points. Second Bank believes the
property should have a 7.5% cap rate. Contrast this loan to the First Bank offer in
Exercise 4 by calculating LTV, Debt Service and first year Debt Service Coverage
(based on NOI) for each loan.
Answer:
Cherry Towers is a well leased CBD office building in a major east coast city. It has
never had occupancy below 90%, however, leases representing 40% of the rentable
space are expiring in five years. Oxy Capital Corp, a private lender, is offering a choice
of two loans a three year 70% LTV loan at 4% and a seven year 50% LTV financing at
7%. Both loans are sufficient to pay off your existing financing and feature a 20 year
amortization schedule. Which loan do you recommend?
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 NOI
Answer:
Buttercup’s Baubles agrees to pay $20 per foot in annual rent with 8% percentage rent
over a natural breakpoint. CAM Expenses are $5 per square foot. Buttercup’s Baubles is
renting 5,000 square feet. Buttercup’s sales are $1.5 million this year. Including
expenses, what is Buttercup’s annual payment to the landlord?
Answer:
The replacement for DCH is Bob’s Account Temps (BAT). BAT has agreed to a $18 per
foot lease on 10,000 square feet. In order to induce the tenant to sign a ten year lease we
have agreed to $5 per foot work letter for tenant specified lighting and a one time
allowance for moving expenses of $20,000. What will these inducements cost us in
total?
Answer:
The Anderson’s want to move to a new apartment in Matrix Cove, a beautiful waterfront
development project. Identical rental and for sale units are available. The monthly rent
is $2,000 for their chosen unit. Rents have been rising at 3% per year. An identical unit
can be purchased for $250,000 with 20% down. The balance can be financed at 5% for
30 years fixed. Property taxes are $250 per month. Other costs of ownership are $500
per month. Both property taxes and other costs have been rising at 3% per year
According to their broker, units have been appreciating at 5% per year. Assume income
tax rate of 35%, capital gains tax rate of 15% and the costs of selling the home are 6%
of the gross sales price. Should they rent or buy assuming they will stay in the unit for
five years. Does your view change if the house does not appreciate over the five year
period, what if it decreases in value at 2% per year?
Answer:
The investors in Warren Woods pay taxes at 35%. Assume 20% of value is attributed to
land and 27.5 year depreciation. What is the after tax return on equity? What is the
maximum distribution that can be paid as a % of equity?
Answer: