Fin 351 final
Given the following information about a fully amortizing loan, calculate the lender's yield (rounded to the nearest tenth of a percent). Loan amount: $166,950, Term: 30 years, Interest rate: 8 %, Monthly Payment: $1,225.00, Discount points: 2. A.7.7% B. 8.0% C. 8.2 % D.10.0 %
C. 8.2 %
Given the following information, calculate the effective borrowing cost (rounded to the nearest tenth of a percent). Loan amount: $166,950, Term: 30 years, Interest rate: 8 %, Monthly Payment: $1,225.00, Discount points: 2, Other Closing Expenses: $3,611. A. 7.7% B. 8.2% C. 8.5% D. 9.1%
C. 8.5%
You have taken out a $225,000, 3/1 ARM. The initial rate of 5.8% (annual) is locked in for 3 years and is expected to increase to 6.5% at the end of the lock period. Calculate the initial payment on the loan. (Note: the term on this 3/1 ARM is 30 years) A. $1,320.19 B. $1,422.15 C. $1,874.45 D. $1959.99
A. $1,320.19
Suppose you have taken out a $200,000 fully-amortizing fixed rate mortgage loan that has a term of 15 years and an interest rate of 4.25%. In month 2 of the mortgage, how much of the monthly mortgage payment does the principal repayment portion consist of? A. $705.51 B. $708.33 C. $796.22 D. $799.04
A. $705.51
In an analogy to the stock market, the net operating income of a property can be viewed as which of the following? A. Annual dividend expected to be produced by the property B. Annual return on the value of the property C. Market value of the property D. Price-earnings ratio of the property
A. Annual dividend expected to be produced by the property
The choice of ownership form for pooled equity investments depends heavily on federal tax considerations. Which of the following ownership structures suffers from the major disadvantage of double taxation? A. C Corporation B. Subchapter S Corporation C. General Partnership D. Limited Liability Company
A. C Corporation
Real estate private equity funds can focus investment on anything from "Class A" real estate to redevelopment in the urban center. On the risk-return spectrum, which of the following private equity fund categories tends to have a heavier development component and often involves investment in riskier property types and locations? A. Core B. Value Added C. Opportunistic D. Full platform
A. Core
Although nonrecourse loans dominate the commercial mortgage lending practices of pension funds, life insurance companies, and commercial mortgage-backed security (CMBS) originators, banks are likely to require some form of a guarantee by the organizer/sponsor of the investment opportunity to make the lender whole in the event the lender suffers a loss on the loan. This protection to the lender is more commonly referred to as a: A. Credit enhancement B. Property externality C. Joint venture D. Mezzanine loan
A. Credit enhancement
The yields on commercial mortgages have been approximately 2 percent higher, on average, than the yields on comparable maturity treasury securities over the past 15 years. Often considered the signature risk of commercial mortgage lending, this spread primarily represents: A. Default risk B. Interest rate risk C. Pipeline risk D. Fallout risk
A. Default risk
While floating rate mortgage loans may offer lower interest rates to borrowers than comparable fixed-payment mortgages, floating-rate loans may increase a lender's exposure to which of the following risks since borrowers may not be able to continue to service the debt if payments on the loan increase significantly? A. Default risk B. Interest rate risk C. Liquidity risk D. Pipeline risk
A. Default risk
Land acquisition, development, and construction loans used by developers differ significantly from the "permanent" mortgages that traditionally are used to finance the purchase of commercial properties. All of the statements listed below are true regarding land acquisition, development, and construction loans EXCEPT: A. Developers can never be held personally liable for such loans B. These loans have floating interest rates tied to short-term interest rate indices C. These loans are interest-only loans. D. These loans can be prepaid at any time without penalty.
A. Developers can never be held personally liable for such loans
There are a number of ways in which individual and institutional investors can hold investments in commercial real estate as a part of their portfolio. One way is to purchase and hold the title to the actual commercial property, which gives the owner complete control of the asset. This type of transaction would be considered which of the following? A. Direct investment in private commercial real estate equity B. Indirect investment in private commercial real estate equity C. Direct investment in private commercial real estate debt D. Indirect investment in private commercial real estate debt
A. Direct investment in private commercial real estate equity
Once a loan application is signed, the lender begins a process that typically includes ordering the fee appraisal, the title report, and a number of third party inspection, compliance, and engineering reports in an attempt to make sure the potential borrower did not misrepresent the property in any way in the original loan submission package. This process is more commonly referred to as: A. Due diligence B. Loan submission C. Loan development D. Defeasance
A. Due diligence
Which of the following types of loans is the most common instrument used to finance the acquisition of existing commercial property? A. Fixed-rate balloon mortgage loans B. Floating-rate mortgage loans C. Mezzanine loans D. Construction loans
A. Fixed-rate balloon mortgage loans
In most pooled ownership forms a single partner is empowered to act on behalf of the investors in terms of making property investment decisions. Based on your understanding of the different types of pooled ownership which of the following structures would we expect this issue to be the least prevalent? A. General partnership B. Limited partnership C. C corporation D. Subchapter S corporation
A. General partnership
Direct investment in private commercial real estate markets is a preferred means of ownership for the largest institutional market participants. Which of the following types of institutions rely on stable income from commercial real estate properties to pay out retirement benefits? A. Pension funds B. Life insurance companies C. Commercial Banks D. Investment Banks
A. Pension funds
Ownership forms for pooled equity investment can differ in terms of how the entity's cash flows are distributed to its investors. Which of the following ownership structures requires cash flows to be allocated to each shareholder in proportion to his or her ownership of the entity, thereby preventing special allocations to multiple classes of investors? A. Subchapter S Corporation B. General Partnership C. Limited Partnership D. Limited Liability Company
A. Subchapter S Corporation
When lenders charge discount points (prepaid interest) on a loan, what impact does this have on the loan's yield? A. The yield on the loan will increase. B. The yield on the loan will decrease. C. The yield on the loan will be unaffected. D. The yield on the loan automatically becomes zero.
A. The yield on the loan will increase.
Prior to determining the treatment of capital expenditures in the calculation of NOI, it is important to distinguish these costs from operating expenses. In contrast to operating expenses, capital expenditures: A. add to the market value of the property B. are deductible for tax purposes in the year in which they are paid. C. are necessary to keep the property operating and competitive in its local market. D. may include minor repairs that do not add to the property's useful life.
A. add to the market value of the property
Partially amortizing mortgage loans require periodic payments of principal, but are not paid off completely over the loan's term to maturity. Instead, the balance of the principal amount is paid at maturity in what is commonly referred to as a: A. balloon payment B. early payment C. up-front payment D. payment cap
A. balloon payment
When fully amortizing loans call for equal periodic payments over the life of the loan they are known as: A. level-payment mortgages B. adjustable-rate mortgages C. interest-only mortgages D. early-payment mortgages
A. level-payment mortgages
One measure of the importance of a publicly traded asset class in the U.S. economy can be calculated by multiplying the number of publicly traded shares by the current market price of the stock. The result of this calculation is more commonly referred to as: A. market capitalization B. capitalization rate C. price-earnings ratio D. earnings-per-share ratio
A. market capitalization
One of the main differences between residential mortgage loans and permanent financing of commercial real estate lies in the allocation of liability in the case of default. In commercial real estate, a "bankruptcy remote" special-purpose entity is created that shields the actual borrower from personal liability. When a lender cannot lay claim to the personal assets of the defaulted borrower, this type of loan is commonly referred to as a: A. nonrecourse loan B. mini-perm loan C. partially amortizing loan D. interest-only loan
A. nonrecourse loan
Suppose a potential home buyer is interested in taking a $500,000 mortgage loan that has a term of 30 years and a fixed mortgage rate of 5.25%. What is the monthly mortgage payment that the homeowner would need to make if this loan is fully amortizing? A. $552.50 B. $2,761.02 C. $17,820.72 D. $33,458.47
B. $2,761.02
Given the following information on an interest-only mortgage, calculate the monthly mortgage payment. Loan amount: $56,000, Term: 15 years, Interest Rate: 7.5%. A. $169.13 B. $350 C. $519.13 D. $4,200
B. $350
Given the following information, calculate the loan-to-value ratio of this commercial loan. Estimated net operating income in the first year: $150,000, Debt service in the first year: $100,000, Loan amount: $1,000,000, Purchase price: $1,300,000 A. 0.08 B. 0.77 C. 1.30 D. 1.75
B. 0.77
Given the following information, calculate the debt yield ratio on the following commercial property. Estimated Net Operating Income in the first year: $2,500,000, Debt service in the first year: $960,000, Loan amount: $20,000,000, Purchase price: $27,300,000 A. 4.8% B. 12.5% C. 68.6 % D. 75.2 %
B. 12.5%
Up until the market for these instruments collapsed in 2008, which of the following was the fastest-growing source of long-term commercial mortgage funds from 2002-2007? A. Real estate investment trusts (REITs) B. Commercial mortgage backed securities (CMBS) C. Construction loans D. Residential mortgage backed securities (MBS)
B. Commercial mortgage backed securities (CMBS)
If the mortgage loan is going to be packaged with similar loans and then resold to investors as part of a commercial mortgage-backed security, the originating lender may rely more heavily on examining which of the following ratios in order to determine the maximum amount they are willing to lend to the borrower? (Note: This ratio indicates the cash-on-cash return the lender would earn on its invested capital if it had to foreclose on the property immediately after originating the loan) A. Debt coverage ratio B. Debt yield ratio C. Debt service ratio D. Equity dividend ratio
B. Debt yield ratio
Recently, 15-year mortgages have increased in popularity amongst both borrowers and lenders. Which of the following groups of borrowers would typically be the least interested ina 15-year mortgage? A. Mature households with minimal financial constraints B. First-time homebuyers C. Homeowners who are refinancing to obtain a lower rate than is available on a comparable 30-year mortgage D. Homeowners who are interested in selling their property within five years
B. First-time homebuyers
In contrast to public markets, private markets are characterized by individually negotiated transactions that take place without the aid of a centralized market. Therefore, private markets will generally have: A. High transaction costs and high liquidity B. High transaction costs and low liquidity C. Low transaction costs and high liquidity D. Low transaction costs and low liquidity
B. High transaction costs and low liquidity
Relative to residential loans, the underwriting process for commercial loans is more complicated. The commercial loan underwriting process focuses first on which of the following? A. Individual borrower's credit quality B. Income producing potential of the collateral property C. Individual borrower's wages D. Individual borrower's personal assets
B. Income producing potential of the collateral property
While balloon mortgage loan payments are typically based on a 30-year amortization schedule, the loan actually matures in either 3, 5, 7, or 10 years. Of the following, which is the primary risk that a lender reduces their exposure to through the relatively short loan term on a balloon mortgage? A. Default risk B. Interest rate risk C. Liquidity risk D. Financial risk
B. Interest rate risk
The key to meaningful valuations in real estate is to use defensible cash flow estimates. All of the following statements are true in regards to generating accurate cash flow estimates EXCEPT: A. Investors should include only those sources of income and expenses that relate directly to the income producing ability of the property. B. Investors should only consider recent events, rather than long-term trends when evaluating revenue and expense items. C. Investors should obtain information about comparable properties whenever possible. D. Investors should take into consideration local zoning, land use, and environmental controls that may impact the future flow of funds.
B. Investors should only consider recent events, rather than long-term trends when evaluating revenue and expense items.
There are two major types of REITs: Equity REITs and Mortgage REITs. Each differs in terms of what they invest in. Which of the following choices best describes the investment focus of an Equity REIT? A. Invests a significant percentage of their assets in both properties and mortgages B. Invests primarily in and operates commercial properties C. Purchases mortgage obligations D. Purchases ownership interests in shares of pension funds and life insurance companies
B. Invests primarily in and operates commercial properties
Different financing requirements usually are involved in the various phases of a property's life. Which of the following types of loans is used to finance improvements to the land, such as sewers, streets and utilities? A. Land acquisition loans B. Land development loans C. Construction loans D. Bridge loans
B. Land development loans
In recent years, which of the following pooled ownership structures are used by private funds that are trying to attract capital from very high net worth and institutional investors? A. General partnership B. Limited partnership C. C corporation D. Limited liability company
B. Limited partnership
Which of the following terms refers to a written agreement that binds the lender to make a loan to the borrower provided the borrower satisfies the terms and conditions of the agreement? A. Loan application B. Loan commitment C. Loan underwriting D. Loan document
B. Loan commitment
While a variety of loan terms are available in a lender's mortgage menu, the most common loan term on a level-payment mortgage is: A. 7 years B. 15 years C. 30 years D. 40 years
C. 30 years
There are a number of alternatives when it comes to the capital structure for acquisitions of commercial real estate. Through which of the following lending relationships does the lender have the right to foreclose on the equity of the borrower's company in the case of default? A. Second mortgage loan B. Mezzanine loan C. Mini-perm loan D. Construction loan
B. Mezzanine loan
Which of the following measures, equal to the estimated total market value of a REITs underlying assets, allows investors to compare the value of a publicly traded security to the value of the properties that it holds in the private market? A. Net income B. Net asset value C. Funds from operations D. Effective gross income
B. Net asset value
When investing in commercial real estate through an intermediary, it is important to consider whether the fund has a finite or infinite life. By having a finite life, the fund manager is forced to eventually dispose of the assets and return the investors' capital. With which of the following fund structures do you expect the issues associated with finite life to be least prevalent? A. Closed-end commingled real estate fund B. Open-end commingled real estate fund C. Real estate private equity fund D. Public, non-traded REIT
B. Open-end commingled real estate fund
The $6.5 trillion total market value of commercial real estate can be broken into four quadrants. Which of the following sectors of the commercial real estate market currently accounts for the largest proportion of market value? A. Public equity B. Privately held equity C. Publicly traded mortgage debt D. Privately held mortgage debt
B. Privately held equity
A commercial real estate loan may take 90 days from the signing of the purchase and sale contract until loan closing. Therefore, there is the possibility for interest rates to fluctuate during this period. In some cases, the lender may offer the borrower the opportunity to "lock in" the interest rate on the loan. To protect against exposure to rate increases during this period, the borrower is often willing to pay a nonrefundable fee as part of what is more commonly known as a: A. Lockout provision B. Rate lock agreement C. Floating rate agreement D. Yield maintenance provision
B. Rate lock agreement
In contrast to residential mortgage loans, most fixed-rate commercial mortgages do not allow borrowers to freely prepay the principal on their loan. Which of the following prepayment penalties ties the penalty that borrowers pay to how far interest rates have declined since origination? A. Lockout provisions B. Yield-maintenance agreements C. Defeasance D. Curtailment
B. Yield-maintenance agreements
In calculating the net operating income (NOI) of a property, the "above-line" treatment of capital expenditures implies: A. capital expenditures are excluded from the calculation of NOI. B. capital expenditures are included in the calculation of NOI. C. capital expenditures are set equal to NOI. D. capital expenditures are divided by NOI.
B. capital expenditures are included in the calculation of NOI.
An alternative vehicle for financing commercial property involves having the lender acquire an ownership (equity) interest in the property by supplying a portion of the required equity capital in addition to providing the permanent debt financing. This type of financing arrangement is commonly referred to as a(n): A. installment sale B. joint venture C. land sale-leaseback D. complete sale-leaseback
B. joint venture
In order to better understand a borrower's probability of default, lenders have a number of tools at their disposal. The ratio that measures the percentage of the price (or value) of a property that is encumbered by the first mortgage is referred to as the: A. debt coverage ratio (DCR) B. loan-to-value ratio (LTV) C. break-even ratio (BER) D. price-earnings ratio (PE)
B. loan-to-value ratio (LTV)
The syndication agreement generally creates a principal/agent relationship in which the syndicator (agent) is empowered to act on behalf of the investors (principals). In most principal/agent relationships, there is the concern that the agent will act in the agent's best interest, not in the best interests of the principal. This issue is more commonly referred to as: A. adverse selection B. moral hazard C. dual agency D. signaling
B. moral hazard
To encourage borrowers to accept adjustable rate mortgages (ARMs) rather than level-payment mortgages, mortgage originators generally offer an initial short-term introductory rate that is less than the prevailing market mortgage rate. This rate is referred to as a(n): A. margin rate B. teaser rate C. index rate D. discount rate
B. teaser rate
One reason why adjustable-rate mortgages (ARMs) have become popular has to do with the impact that they have on the interest rate risk that is borne by the parties involved. If interest rates were to rise on a level-payment mortgage (LPM) the interest rate risk of the loan would typically be borne by: A. the borrower only B. the lender only C. both the borrower and lender D. neither the borrower nor the lender
B. the lender only
The APR can be a controversial measure of borrowing cost because it tends to: A. overstate the true borrowing cost by assuming we hold mortgage until maturity B. understate the true borrowing cost by assuming we hold mortgage until maturity C. overstate the true borrowing cost by assuming we do not hold mortgage until maturity D. understate the true borrowing cost by assuming we do not hold mortgage until maturity
B. understate the true borrowing cost by assuming we hold mortgage until maturity
As of 2011, nearly 88% of private commercial real estate equity was owned by "noninstitutional investors." Which of the following investor categories represents the most common form of noninstitutional ownership? A. Pension funds B. Sole proprietorship C. "local" syndications and private equity funds D. Life insurance companies
C. "local" syndications and private equity funds
Suppose you have taken out a $125,000 fully-amortizing fixed rate mortgage loan that has a term of 15 years and an interest rate of 6%. After your first mortgage payment, how much of the original loan balance is remaining? A. $1,054.82 B. $120,603.78 C. $124,570.18 D. $124,875.56
C. $124,570.18
Given the following information on a 30-year fixed-payment fully-amortizing loan, determine the remaining balance that the borrower has at the end of seven years. Interest Rate: 7%, Monthly Payment: $1,200. A. $17,143 B. $79,509 C. $164,402 D. $180,369
C. $164,402
Assume you have taken out a balloon mortgage loan for $2,500,000 to finance the purchase of a commercial property. The loan has a term of 5 years, but amortizes over 25 years. Calculate the balloon payment at maturity (Year 5) if the interest rate on this loan is 4.5%. A. $5,637.99 B. $13, 895.82 C. $2,196,447.59 D. $2,495,479.19
C. $2,196,447.59
Assume you have taken out a partially amortizing loan for $325,000 that has a term of 7 years, but amortizes over 30 years. Calculate the balloon payment at maturity (Year 7) if the interest rate on this loan is 4.5%. A. $1,646.73 B. $118,468.21 C. $282,835.42 D. $324,572.02
C. $282,835.42
You have taken out a $350,000, 3/1 ARM. The initial rate of 6.0% (annual) is locked in for 3 years. Calculate the outstanding balance on the loan after 3 years. The interest rate after the initial lock period is 6.5%. (Note: the term on this 3/1 ARM is 30 years) A. $2,098.43 B. $2,183.95 C. $336,294.25 D. $347,901.57
C. $336,294.25
Let's assume that you have just taken out a mortgage loan for $200,000 with an origination fee of 2 points due upfront. The mortgage term is 30 years and the mortgage rate is fixed at 4%. What is the cost of the origination fee in dollar terms? A. $400.00 B. $954.83 C. $4000.00 D. $4954.83
C. $4000.00
Given the following information, calculate the balloon payment for a partially amortized mortgage. Loan amount: $84,000, Term to maturity: 7 years, Amortization Term: 30 years, Interest rate: 4.5%, Monthly Payment: $425.62. A. $9,458 B. $30,620 C. $73,102 D. $84,000
C. $73,102
28. Suppose you are considering the purchase of an apartment building that has 12 units that can be rented out at $1,050 per month. You have estimated operating expenses and expected vacancy and collection losses for the first year to be $35,700 and $30,240, respectively. You also have estimated that you will be able to generate an additional $3,840 in the first year from garage rentals on the property. If the expected purchase price of the property is $1,100,000 and you are planning on making a 10% down payment, calculate the debt yield ratio. A. 8.10% B. 8.61% C. 9.00% D. 12.05%
C. 9.00%
Given the following information, calculate the price-FFO multiple for the following REIT. Net income: $1,200,000, Gain/losses from infrequent and unusual events: $0, Amortization of tenant improvements: $120,000, Amortization of leasing expenses: $75,000, Depreciation (real property): $2,675,000. Stock Price: $40; Market Capitalization: $40,000,000 A. 0.10 B. 4.07 C. 9.83 D. 393.12
C. 9.83
Required by the Truth-in-Lending Act, the annual percentage rate (APR) is reported by the lender to the borrower on virtually all U.S. home mortgage loans. The APR accounts for all of the following EXCEPT: A. All finance charges in connection with the loan, such as discount points, origination fees, and underwriting fees. B. All compensation to the originating brokers if one was used by the borrower. C. Any prepayment of principal to be made on the loan. D. Premiums for required forms of insurance
C. Any prepayment of principal to be made on the loan.
In determining a property's before-tax cash flow from operations (BTCF) and net operating income (NOI), it is important to understand how each accounts for the use of financial leverage in its calculation. Which of the following statements is true in regards to how these two measures account for the use of financial leverage? A. BTCF and NOI are both levered cash flows B. BTCF is an unlevered cash flow, while NOI is a levered cash flow C. BTCF is a levered cash flow, while NOI is an unlevered cash flow D. BTCF and NOI are both unlevered cash flows
C. BTCF is a levered cash flow, while NOI is an unlevered cash flow
The going-in capitalization rate can vary significantly by property quality. Which of the following classes of properties within a particular property type would be expected to have the highest cap rates? A. Class A properties B. Class B properties C. Class C properties D. Cap rates would be equal across all classes within the same property type
C. Class C properties
If mortgage rates decline significantly, borrowers may decide to prepay the principal on their loan even if they face prepayment penalties. One way that lenders protect themselves from prepayments in such circumstances is by requiring the borrower who prepays to purchase for the lender a set of U.S. Treasury securities whose coupon payments replicate the cash flows the lender will lose as a result of the early retirement of the mortgage. This process is referred to as: A. Lockout B. Yield-maintenance C. Defeasance D. Curtailment
C. Defeasance
Since most real estate assets are depreciable, using accounting income to measure a REIT's cash flow may actually understate the funds that are available to distribute to investors as dividends. Therefore, REITs utilize a measure that adds back depreciation and amortization expenses, more commonly referred to as: A. Net income B. Net asset value C. Funds from operations D. Effective gross income
C. Funds from operations
The choice of ownership form for pooled equity investments can also depend on the desire to avoid personal liability. Which of the following ownership structures suffers from the major disadvantage of unlimited liability for all investors? A. C Corporation B. Subchapter S Corporation C. General Partnership D. Limited Partnership
C. General Partnership
The use of a mezzanine loan in the purchase of a commercial property has all of the following impacts on the borrower EXCEPT: A. Allows the borrower to increase their financial leverage in the purchase of the property B. Increases the borrower's expected first year return on equity C. Mitigates the risk of financing for the borrower D. Requires the borrower to pledge an equity interest in their company (e.g., LLC) as collateral for the loan rather than pledging the property.
C. Mitigates the risk of financing for the borrower
Section 1031 of the Internal Revenue Code permits investors to defer some or all of the taxable gain that would ordinarily be due on the sale of a property if they exchange for "like-kind" property. In order to avoid income taxes, many investors attempted to make use of this tax code when disposing of commercial real estate assets. This led to the reemergence of which of the following forms of ownership in commercial real estate? A. General Partnership B. Limited Liability Company C. Tenancy-in-common D. Limited Partnership
C. Tenancy-in-common
Some commercial mortgages have adjustable, or floating, interest rates. The index rate to which the contract rate is tied is typically which of the following for commercial mortgages? A. The yield on a constant maturity Treasury security of the same term B. The cost of funds index (COFI) C. The London Interbank Offer Rate (LIBOR) D. The interest rate on a comparable maturity level-payment mortgage
C. The London Interbank Offer Rate (LIBOR)
Assume that a borrower has a choice between two comparable fixed-rate mortgage loans with the same interest rate, but different mortgage terms, one being a 30-year mortgage and the other a 15-year mortgage. Under financially unconstrained circumstances, which of the following statements best describes the borrower's preference? A. The borrower would prefer the 30-year mortgage. B. The borrower would prefer the 15-year mortgage. C. The borrower would be indifferent between the two mortgages. D. The borrower is unable to compare mortgage loans of two different maturities.
C. The borrower would be indifferent between the two mortgages.
The use of financial leverage by real estate investors can be a double-edged sword. All of the following statements regarding the use of financial leverage by real estate investors are true EXCEPT: A. The use of financial leverage by real estate investors mitigates the impact that limited financial resources would otherwise have on their pursuit of investment opportunities. B. The use of financial leverage by real estate investors will increase the internal rate of return (IRR) on equity as long as the cost of borrowing is less than the unlevered IRR. C. The use of financial leverage reduces the real estate investor's exposure to default risk. D. The use of financial leverage by real estate investors makes the realized return on equity more sensitive to changes in rental rates and resale values.
C. The use of financial leverage reduces the real estate investor's exposure to default risk.
In considering a 3/1 adjustable-rate mortgage (ARM), the interest rate will be fixed for how many years? A. One year B. Two years C. Three years D. Four years
C. Three years
The estimated market value of investible commercial real estate in the United States at the end of 2011 was approximately $6.5 trillion. In terms of market size, which of the following asset categories is most closely related to commercial real estate? A. Owner-occupied housing B. Corporate equities C. U.S. Treasury securities D. Municipal securities
C. U.S. Treasury securities
If the per share stock price of a REIT is greater than its per share net asset value (NAV), the REIT is said to be selling at: A. par value B. a discount C. a premium D. an auction
C. a premium
Prospective borrowers often submit loan requests directly to lenders. However, commercial loan requests can also be submitted through another channel in which a permanent lender agrees to purchase loans or consider loan requests from a mortgage banker or broker. This type of business relationship is more commonly referred to as a(n): A. installment sale B. joint venture C. correspondent relationship D. sale-leaseback
C. correspondent relationship
In making single-asset real estate investment decisions, the first pass often involves calculating a series of returns, ratios, and multipliers. Which of the following is often cited as a limitation associated with this type of analysis? A. they are difficult to calculate B. they are complex to understand C. they fail to incorporate cash flows beyond the first year of the analysis D. they are rarely used by industry professionals
C. they fail to incorporate cash flows beyond the first year of the analysis
In recent years, lenders have been unwilling to relieve borrowers from personal liability in the event of fraud, environmental problems, or unpaid property tax obligations. Therefore, some lenders include a clause that pierces the single-purpose borrowing entity to hold the actual borrower liable in such instances. This clause is commonly referred to as a: A. habendum clause B. lockout provision C. defeasance D. "bad boy carve-out" clause
D. "bad boy carve-out" clause
Given the following information on a fixed-rate fully amortizing loan, determine the maximum amount that the lender will be willing to provide to the borrower. Loan Term: 30 years, Monthly Payment: $800, Interest Rate: 6%. A. $6,707 B. $9,295.15 C. $13,333 D. $133,433
D. $133,433
You have taken out a $300,000, 5/1 ARM. The initial rate of 5.4% (annual) is locked in for 5 years. Calculate the payment after recasting the loan (i.e., after the reset) assuming the interest rate after the initial lock period is 8.0%. (Note: the term on this 5/1 ARM is 30 years) A. $1,684.59 B. $1,784.79 C. $1,887.75 D. $2,138.02
D. $2,138.02
Given the following information, calculate the funds from operation (FFO). Net income: $1,200,000, Gain/losses from infrequent and unusual events: $0, Amortization of tenant improvements: $120,000, Amortization of leasing expenses: $75,000, Depreciation (real property): $2,675,000. A. $195,000 B. $1,395,000 C. $2,870,000 D. $4,070,000
D. $4,070,000
Given the following information, calculate the debt coverage ratio of this commercial loan. Estimated net operating income (NOI) in the first year: $150,000, Debt service in the first year: $100,000, Loan amount: $1,000,000, Purchase price: $1,300,000 A. 0.15 B. 0.67 C. 1.30 D. 1.50
D. 1.50
The measure of cash flow most relevant to investors in income-producing real estate is the after-tax cash flow (ATCF) from property operations. Therefore, it is important to know that the maximum federal income tax rate on individuals as of 2012 is: A. 25% B. 30% C. 33% D. 35%
D. 35%
Given the following information, calculate the Effective Borrowing Cost (EBC). Loan amount: $175,000, Term: 30 years, Interest rate: 7 %, Payment: $1,164.28, Discount points: 1, Origination fee: $3,250. Assume the loan is held until the end of year 10. A. 0.6% B. 3.8% C. 7.0% D. 7.4%
D. 7.4%
There are a set of restrictive conditions that REITs must satisfy on an ongoing basis in order to maintain their special tax status. All of the following statements regarding the main restrictions are true EXCEPT: A. At least 100 investors must own a REIT's shares B. No five investors can own more than 50 percent of a REIT's shares C. At least 75 percent of the value of a REIT's assets must consist of real estate assets D. A REIT must distribute at least 75% of its taxable income to shareholders in the form of dividends.
D. A REIT must distribute at least 75% of its taxable income to shareholders in the form of dividends.
Though difficult to accurately measure, the market value of U.S. real estate held by non-real estate corporations is estimated to exceed $10 trillion. All of the following are examples of noninvestible commercial real estate EXCEPT: A. Medical office buildings owned by the hospital B. Branch offices owned by the bank C. Plant and equipment owned by steel corporations D. Assembly plant building owned by a group of investors as part of an LLC
D. Assembly plant building owned by a group of investors as part of an LLC
An interest-only balloon mortgage loan is commonly referred to as a(n): A. Mini-perm loan B. Mezzanine loan C. Land acquisition loan D. Bullet loan
D. Bullet loan
For the purposes of estimating the effective borrowing cost (EBC), only those up-front expenses associated with obtaining the mortgage should be included, not the settlement costs associated with obtaining ownership of the property. With this in mind, which of the following costs should not be included in one's calculation of EBC? A. Discount points B. Loan origination fees C. Appraisal fee D. Buyer's title insurance
D. Buyer's title insurance
Of the $3.2 trillion in outstanding mortgage debt in the U.S., approximately 714% is privately held by institutional and individual investors. Which of the following institutions is the largest single source of private mortgage funds? A. Savings institutions B. Life insurance companies C. Government Sponsored Enterprises D. Commercial banks
D. Commercial banks
From the borrower's perspective, the effective borrowing cost is often viewed as the implied internal rate of return (IRR), since it takes into consideration costs that the borrower faces, but which are not passed on as income to the lender. Included in this calculation are certain closing costs, which may consist of all of the following EXCEPT: A. Title insurance B. Mortgage insurance C. Recording fees D. Earnest money
D. Earnest money
In recent years, a number of pooled ownership structures have emerged that have changed the analysis of ownership form selection for many investors. Which of the following ownership structures is generally used for small, local investments that are marketed to accredited, but non-institutional investors? A. General partnership B. Limited partnership C. C corporation D. Limited liability company
D. Limited liability company
When fund managers collect contributions from multiple sources and "commingle" them to purchase properties, this is referred to as the use of commingled real estate funds. Which of the following institutional investors utilize commingled real estate funds for approximately one-half of their investments in real estate? A. Investment banks B. Life insurance companies C. Real estate advisory firms D. Pension funds
D. Pension funds
In most small to medium private real estate deals, syndicators play important roles within the origination, operation, and completion phases of a real estate syndicate's life. All of the following are responsibilities of the syndicator in the operation phase of a syndicate's life EXCEPT: A. Manage the syndication B. Manage properties C. Raise additional investment capital if required D. Prepare the properties for sale
D. Prepare the properties for sale
All of the following are responsibilities of the syndicator in the origination phase of a syndicate's life EXCEPT: A. Develop the concept for the syndication B. Organize the legal entity C. Acquire or obtain control of the real estate D. Raise additional investment capital
D. Raise additional investment capital
At the end of 2011, commercial banks and other financial institutions collectively owned $51 billion in commercial real estate equity. The vast majority of these holding are the result of which of the following types of investment by these institutions? A. Direct equity investment through private market purchases B. Indirect investment through real estate securities C. Commingled real estate funds D. Real estate obtained as a result of borrower default and foreclosure.
D. Real estate obtained as a result of borrower default and foreclosure.
Most real estate investment trusts (REITs) are actively managed operating companies that typically focus their investments either by property type or geographic market. Which of the following commercial property types represents the largest proportion of REIT market value? A. Apartments B. Office C. Industrial D. Retail
D. Retail
With the recent popularity of adjustable-rate mortgages (ARM), lenders have begun to offer ARMs with different adjustment periods. Which of the following ARM choices will most likely have the highest initial rate? A. Three-year-one-year ARM B. Five-year-one-year ARM C. Seven-year-one-year ARM D. Ten-year-one-year ARM
D. Ten-year-one-year ARM
The monthly mortgage payment divided by the loan amount is commonly referred to as the: A. loan balance B. effective borrowing cost C. lender's yield D. monthly loan constant
D. monthly loan constant