Chapter 16 Questions
David purchased a $2,400,000 shopping center at a 4.5% cap rate. What is the NOI on the building...?
108000
Abby purchased a commercial property using all cash at a 11% capitalization rate. What is Abby's cash-on-cash return on the deal...?
11%
If the going cap rate for a multi-family building in a particular market is 8.5%, what will the purchase price be if the NOI on the property is $125,000...?
1470588
What is the available cash that a property yields if the income is equal to $550,000, the cash expenses equal $220,000, and the principal and interest amount to $75,000...?
255000
What is the available cash that a property yields if the income is equal to $720,000, the cash expenses equal $350,000, and the principal and interest amount to $75,000...?
295000
A mid-rise office building consists of how many stories...?
3-15 Stories
If a property owner has a $105,000 tax loss, and falls within a 33% tax bracket, what savings will the owner experience...?
34650
At what size does a bank treat a residential building as commercial...?
5 units or more
What is the cap rate on a building that was purchased for $1,800,000 with an NOI of $95,000...?
5.3%
If the capitalization rate of a property is 5.5%, and a buyer purchases the property using all cash, what is the cash-on-cash return for the buyer...?
5.5%
If the going cap rate for an office building in a particular market is 6.25%, what will the purchase price be if the NOI on the property is $325,000...?
5200000
What is the cash-on-cash return for an owner who purchases a $2,500,000 property, with an NOI of $150,000 using all cash...?
6%
What is the cash-on-cash return for an owner who purchases a $7,000,000 property, with an NOI of $500,000 using all cash...?
7.14%
If the rent on a 25,500 sq.ft. office space is $36 per sq.ft., how much does the tenant pay on a monthly basis...?
76500
A higher cap rate will yield what...?
A lower price
The net profit/loss realized after taxes are deducted is known as what...?
After tax cash flow
If a landlord would like to pass a utility bill on to his/her tenants, what type of metering would be required...? A) All of the above B) Direct metering C) Rent inclusion D) Sub-metering
All of the above
Which of the following is a lease clause found in most commercial leases...? A) All of the above B) Lease duration clause C) Free rent clause D) Tenant's future work clause
All of the above
Which of the following is an example of using leverage in a real estate transaction...? A) All of the above B) Obtaining a mortgage C) Creating a real estate syndication D) Obtaining seller financing
All of the above
What will a landlord demand of their tenants when attempting to obtain financing on the building...?
An estoppel letter
Real estate is known as an illiquid asset because of this...?
An owner's equity cannot easily be withdrawn
The price/sq.ft. described in a commercial lease is typically represented on what basis...?
Annual
The net profit/loss calculated by subtracting expenses from income before taxes are paid is known as...?
Before Tax Cash Flow
Which of the following is NOT an example of using leverage in a real estate transaction...? A) Buying a property using all cash B) Obtaining a mortgage C) Creating a real estate syndication D) Obtaining seller financing
Buying a property using all cash
Which of the following equations will yield positive leverage in a deal...?
Cap Rate > Interest Rate
The replacement of a roof in a commercial building may be considered what type of expense...?
Capital Expenditure
Replacement reserves, as commonly found in pro-forma statements, typically account for what...?
Capital Expenditures
What is NOT typically accounted for in repairs and maintenance expenses...?
Capital Expenditures
What is used to calculate an investor's cash-on-cash return if the property is purchased using all cash...?
Capitalization Rate
As opposed to residential property, commercial property is valued based on this...?
Cash Flow
A residential property owner, as opposed to a commercial owner, is typically NOT concerned with what...?
Cash flow of the property
A Fortune 500 company looking to lease space for its corporate headquarters will most likely look for this Class of office building...?
Clas A
Eric works in a 20 year-old building that lacks some of the amenities found in newer office buildings. Eric most likely works in this Class of building...?
Class B
The amount of cash flow a property produces is used to determine the value of this property type...?
Commercial
Capitalization rates do NOT take what into consideration...?
Debt Service
XYZ Company recently signed a lease on their new office space. As part of the lease agreement, they must pay for property's real estate taxes and premiums for insuring the building. What type of lease did XYZ Company sign...?
Double Net Lease
A thorough review of a commercial investment property's financials are conducted during this process...?
Due Diligence
Which of the following properties would be considered the most risky as an investment...?
Duplex Apartment House
The actual income that an owner collects on a property, before expenses, is known as what...?
Effective Gross Income
Net operating income is equal to what...?
Effective Gross Income - Expenses
The pricing of residential real estate is based, in part, on which of the following...?
Emotions
The total amount collected from rents and other income producing opportunities is referred to as...?
Gross Income
This type of office building consists of 20 or more stories...?
High Rise Building
Higher interest rates will yield what...?
Higher Cap Rates
Why may investors demand paying a lower price for a property when interest rates are high...?
Higher interest rates yield a lower cash flow
Net operating income is equal to what...?
Income - Expenses
As interest rates go up, cap rates do what...?
Increase
What is the equation for negative leverage...?
Interest Rate > Cap Rate
Which of the following will yield negative leverage in a deal...?
Interest Rate > Cap Rate
Real estate is considered an illiquid asset because....?
It cannot easily be sold
Under a NNN lease, who is responsible for maintaining the roof and structure of the building...?
Landlord
Who pays the expenses of the building in a gross lease...?
Landlord
What clause in a commercial lease accounts for increases in market rents, real estate taxes, and expenses...?
Lease escalation clause
Larry purchased a property at a 6% Cap Rate. What must the interest rate on his mortgage be in order to avoid negative leverage...?
Less than 6%
Andrew recently purchased a commercial investment property. To help finance the deal, Andrew was able to obtain seller financing for a term of 10 years, at 6.5%. Andrew's use of seller financing is an example of what...?
Leverage
Ely is a real estate syndicator. He pools together a group of investors to buy commercial investment properties. Ely's use of other people's money is an example of what...?
Leverage
What is used by nearly every real estate investor to buy a commercial property...?
Leverage
If the cash flow of a building cannot cover the cost of upkeep, the owner must have what, to maintain the building...?
Liqquidity
David is looking to buy a commercial investment property. In addition to the cash needed for the down payment, David also needs this to run and maintain the property...?
Liquidity
Which of the following is a major aspect of commercial investment properties...?
Liquidity
Lisa would like to buy a larger self storage building. How can this be accomplished using less cash out of pocket by Lisa...?
Lisa should use leverage by obtaining seller financing
Why may investors be willing to pay more for a property when interest rates are low...?
Lower interest rates yield higher cash flows
This property type is NOT considered a primary commercial property type...?
Mixed-Use Buildings
Town Brokers have recently signed a lease to occupy an entire office building. What type of lease did Town Brokers most likely sign...?
NNN Lease
If the cap rate on a building is 4% and the interest rate on the mortgage is 5.5%, what will the owner experience...?
Negative Leverage
James purchased a commercial property at a 7.5% cap rate. The previous owner agreed to finance the deal at 8%. Why may James elect not to go ahead with the financing...?
Negative Leverage
This retail property type is typically 30,000 - 100,000 sq.ft...?
Neighborhood Centers
In this lease type, the tenant's only expenses are real estate taxes, while the landlord pays the rest of the expenses...?
Net Lease
This type of lease is typically found in office buildings...?
Net Lease
The Effective Gross Income minus Expenses will yield...?
Net Operating Income
This is equal to the gross income minus expenses (and sometimes debt service)...?
Net Operating Income
The landlord of a building needs to perform plumbing work in the bathroom of a tenant's space. Which clause in the tenant's lease will specify when the landlord is permitted to enter the tenant's space to perform the work...?
Notice Clause
This retail property type typically consists of 1 - 2 anchor tenants...?
Outlet Centers
Individual retail sites in a shopping center are referred to as what...?
Outparcel
Andrew bought a building at a 6% cap rate. The interest rate on his mortgage is only 5.2%. What will Andrew experience in the deal...?
Positive Leverage
In a commercial lease, the price charged to the tenant is based on what...?
Price per Sq. Ft
Mortgage payments made by a property owner typically consists of interest and what...?
Principal
As opposed to the actual review of the past performance of a building, this statement estimates how a building may perform in the future...?
Pro-Forma
Property A is a self storage facility with a going cap rate of 5.0%. Property B is an office building with a going cap rate of 5.5%. If both properties produce the same NOI, which property is worth more...?
Property A
Property A is an office building with a going cap rate of 6.5%. Property B is a multi-family building with a going cap rate of 4.7%. If both properties produce the same NOI, which property is worth more...?
Property B
What will a commercial building owner consider a capital expenditure, as opposed to a 'repairs and maintenance' expense...?
Renovating the lobby
This document will show what units in a particular building are vacant and which units are occupied...?
Rent Roll
The amount of cash flow a property produces is NOT used in determining the value of this property type...?
Residential
A percentage lease is commonly used by these tenants...?
Retail Tenant
In this agreement, the tenant agrees to subordinate their lease to a mortgage on the building...?
SDNA
In this agreement, the tenant commits to maintaining their lease, even if the property changes ownership...?
SDNA
What is a primary focus of a commercial property owner, as opposed to a residential owner...?
Stability of Cash Flow
Which of the following is an example of using 'other people's money'...?
Syndicating Capital
A building's Net Operating Income - Total Deductions is equal to what...?
Taxable Basis
What is an underlying component that contributes to an investor's decision as to what capitalization rate is appropriate for a particular property...?
The amount of risk associated with the deal
If a tenant sublets their space to a sub-tenant, who is responsible for the lease...?
The tenant
Due diligence is critical to understanding what of a commercial investment property...?
The true value of the property
The concept that $1 dollar today is worth more than $1 in the future is known as what...?
Time Value of Money
The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity is known as...?
Time Value of Money
City Brokers recently signed a lease on their new office space. As part of the lease agreement, City Brokers must pay for all of the building's expenses. What type of lease did City Brokers sign...?
Triple Net Lease
Which of the following lease types typically results the lowest rent per square foot...?
Triple Net Lease
This clause in a commercial lease allows the landlord to restrict tenants from conducting certain business activities in their space, which may affect other tenants in the building....?
Use Clause
Which of the following is NOT considered a main commercial property type...?
Vacant Land
When is a pro-forma conducted by a real estate investor...?
When evaluating a potential property to buy
In this type of lease, the tenant is required to report the performance of the business to the landlord...?
percentage
