Final
35. Suppose that you are able to generate an annual depreciation deduction of $20,000 that would otherwise have been taxed at a 30% rate each year for 7 years. Suppose that your taxes due on sale in year 7 will be $32,000 greater than if the property had not been depreciated. Determine the net benefit of depreciation assuming a discount rate of 6.5%. A. $12,315 B. $20,592 C. $32,907 D. $53,499
A. $12,315
34. Tax depreciation shelters a portion of annual operating income from taxation. However, the amount of cumulative tax depreciation is taxed when the property is sold. Suppose that your taxes due on sale will be $35,000 greater than if the property had not been depreciated. If the sale were to occur 5 years from now, determine the present value of the tax on depreciation recapture in the year of sale assuming a discount rate of 9.5%. A. $22,233 B. $31,963 C. $55,098 D. $134,390
A. $22,233
24. Given the following information, calculate the straight-line depreciation rate for the first year using the midmonth convention. Cost recovery period: 27 ½ years, Date of purchase: April 10th. A. 2.6% B. 3.63% C. 19.5% D. 70.8%
A. 2.6%
8. 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
20. 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
8. The choice of which method to use in constructing the contracted rental rate can be impacted by the term of the lease. With a shorter lease term, which of the following methods is most likely to be observed? A. Flat rent B. Graduated rent C. Indexed rent D. Percentage rent
A. Flat rent
21. Retail establishments are found in a variety of forms, the simplest of which is: (Hint: fast-food franchise) A. Freestanding retail outlet B. Strip center C. Power center D. Regional mall
A. Freestanding retail outlet
12. A recent trend in commercial leases is for tenants to negotiate a cap on the amount of certain operating expenses they are required to reimburse the landlord. Such caps are usually negotiated on operating expenses thought to be at least partially controllable by the owner. Which of the following would typically be considered an operating expense controllable by the owner? A. General maintenance B. Property taxes C. Insurance payments D. Utility expenses
A. General maintenance
17. 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
11. Certain costs associated with a property's upkeep as well as the manner in which it was financed can be depreciated and therefore have a beneficial impact on the tax paid by the investor in a particular year. Which of the following cash outflows is deductible for income tax purposes in the year in which they are made? A. Operating expenses B. Capital expenditures C. Up-front financing costs D. Repayment of principal
A. Operating expenses
21. 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
3. Once possession and control are conveyed in a lease agreement, the owner must provide the tenant with uninterrupted use of the property without any interference from any entity that may threaten to impose upon the tenant's leasehold interest in the property. In other words, the tenant is entitled to which of the following? A. Quiet enjoyment B. Tenant improvement C. Concession D. Expansion option
A. Quiet enjoyment
22. The tax treatment of real estate holdings that are classified as trade or business property and are held for more than one year is more commonly referred to as which of the following sections of the tax code? A. Section 1231 B. Section 1031 C. Section 856 D. Section 851
A. Section 1231
9. 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
25. Lenders may request that property owners of rental properties include a clause in their lease agreement that gives the lender the right to terminate the lease and evict the tenant, even if the tenant has fulfilled all of its responsibilities under the lease, in the case that the owner of the property defaults on her mortgage. This part of the lease agreement is more commonly referred to as a: A. Subordination clause B. Non-disturbance agreement C. Relocation option D. Expansion option
A. Subordination clause
31. A group of persons or legal entities who come together to carry out a particular activity are more commonly referred to as a: A. Syndicate B. Security C. Trust D. Broker
A. Syndicate
26. To the extent the tenant is permitted to alter the leased premises, the lease should clearly state when this may be done, and under what circumstances. The lease must also be clear about the ownership of such improvements once completed. Which of the following terms refers to items of personal property that are attached to the real property, are paid for and installed by the tenant, and may be removed by the tenant at the termination of the lease? A. Trade fixtures B. Anchors C. Concessions D. Expense stop
A. Trade fixtures
14. Some tenants who are subject to long-term leases may desire to transfer all of their tenant rights and obligations to another party. This is commonly referred to as a(n): A. assignment B. sublease C. concession D. lease option
A. assignment
8. When cash flows are classified as passive activity income, investors are subject to passive activity loss restrictions. These restrictions imply that passive income losses: A. can be used to offset positive taxable income from other passive activities. B. can be used to offset positive taxable income from other passive and active activities. C. can be used to offset positive taxable income from other passive and portfolio activities. D. cannot be used to offset positive taxable income from any type of activity.
A. can be used to offset positive taxable income from other passive activities.
24. 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
16. A lease option is a clause that grants an option holder the right, but not the obligation, to renew the lease, cancel the agreement, relocate within a property, or even expand to adjacent space. The existence of these options in a leasing agreement: A. reduces the expected present value of lease cash flows to the owner B. increases the expected present value of lease cash flows to the owner C. does not impact the expected present value of lease cash flows to the owner D. causes the expected present value of lease cash flows to equal zero
A. reduces the expected present value of lease cash flows to the owner
5. When securing a new tenant for a commercial rental property, the owner of the property might incur an additional expense that amounts to the cost of refurbishing the rental space to meet the needs of the tenant's business. The allocation of money for this added expense is more commonly referred to as a(n): A. tenant improvement allowance B. concession C. sublease D. expense stop
A. tenant improvement allowance
27. The use of mortgage debt to finance an income property investment has certain tax consequences. For example, up-front financing costs for investment properties are not fully deductible in the year in which they are paid. Instead, they must be amortized over the life of the loan. If up-front financing costs on a 30-year loan total $6,000, what is the maximum amount per year that the investor can deduct when calculating taxable income from rental operations? (Assume that there is no prepayment on the loan) A. $100 B. $200 C. $2,400 D. $6,000
B. $200
33. Suppose that you are able to generate an annual depreciation deduction of $34,000 that would otherwise have been taxed at a 30% rate each year for 5 years. Determine the present value of the annual tax savings using a 7.5% discount rate. A. $26,683 B. $41,268 C. $96,292 D. $137,560
B. $41,268
28. The tax treatment of up-front financing costs calls for these expenses to be amortized over the life of the loan. However, if the loan is prepaid prior to the term of the loan (perhaps because the property is sold), the tax treatment of these costs changes. If up-front financing costs on a 30-year loan total $6,000, and the loan is prepaid in full at the end of year 5, what is the maximum amount that the investor can deduct when calculating taxable income from rental operations in year 5? A. $5,000 B. $5,200 C. $5,600 D. $6,000
B. $5,200
37. Given the following information, calculate the funds from operation (FFO). Net income: $44,245,000; Gain/losses from infrequent and unusual events: $50,000; Amortization of tenant improvements: $575,000; Amortization of leasing expenses: $133,000; Depreciation (real property): $30,906,000. A. $12,581,000 B. $75,809,000 C. $75,859,000 D. $75,909,000
B. $75,809,000
12. The value of a property can be thought of as having two components, a land component and a building component. Since the land component of the original cost basis is not depreciable, it is important to understand how much of the property's value is typically attributed to the land for tax purposes. As a general rule, the value of land constitutes what percentage (expressed as a range) of the total value of a commercial property? A. 0% to 10% B. 10% to 30% C. 30% to 50% D. 50% to 70%
B. 10% to 30%
14. Current tax law allows investors to take tax credits for the cost of renovating or rehabilitating older or historic structures and for the construction or rehabilitation of qualified low-income housing. Which of the following statements regarding tax credits is true? A. A $1 tax credit reduces the investor's tax liability by an amount dependent on the individual's income tax bracket. B. A $1 tax credit reduces the investor's tax liability by $1. C. A $1 tax credit increases the investor's taxable income by $1 D. A $1 tax credit has exactly the same impact on an investor's tax liability as a tax deduction.
B. A $1 tax credit reduces the investor's tax liability by $1.
23. The large and generally well-known retailers who draw the majority of customers to a shopping center are more commonly referred to as: A. Outlets B. Anchors C. Strips D. Chains
B. Anchors
9. When an investment appreciates in value during the investment holding period, the appreciation is generally taxed at which of the following rates? A. Ordinary tax rates B. Capital gain tax rates C. Portfolio income tax rates D. Active income tax rates
B. Capital gain tax rates
13. 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)
2. 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
33. Investors in commercial real estate can hold ownership positions either directly or indirectly. An entity that invests in real estate and sells claims on those investments to the ultimate investors is more commonly referred to as a(n): A. Syndicate B. Intermediary C. Sole proprietorship D. Tenant
B. Intermediary
4. 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
19. 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
19. The majority of residential units in the U.S. are contained in multifamily structures, or apartment buildings that contain five or more housing units. Which of the following multifamily structures will range in height from four to nine stories and are typically found in both cities and suburbs? A. High-rise apartment buildings B. Midrise apartment buildings C. Garden apartments D. Condominiums
B. Midrise apartment buildings
28. 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
11. Of the following choices, which best describes the operating expenses that you would expect to be the paid by the tenant in a net lease agreement? A. No operating expenses B. Only property taxes C. Both property taxes and insurance D. All operating expenses
B. Only property taxes
22. 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
1. The $8.8 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
1. The lease is a contract between a property owner and tenant that transfers exclusive use and possession of space to the tenant, but allows the owner to retake possession of the property at the expiration of the lease. Which type of interest allows the owner to retake possession at the end of a lease? A. Remainder interest B. Reversion interest C. Spousal interest D. Co-ownership interest
B. Reversion interest
30. Which of the following types of real estate private equity funds would you expect to invest in properties that have some lease-up risk and/or the need for moderate renovation or repositioning? A. Core B. Value Added C. Opportunistic D. Full platform
B. Value Added
1. The direct ownership of commercial real estate produces cash flows from rental operations and, perhaps, cash flow from an eventual sale of the property. Since financial leverage and tax considerations play an important part in determining an investor's returns, the measure of investment value most relevant to investors is the present value of: A. before-tax cash flows (BTCF) B. after-tax cash flows (ATCF) C. net operating income (NOI) D. net sale proceeds (NSP)
B. after-tax cash flows (ATCF)
13. When the supply of space exceeds the demand, it is common for owners to provide the tenant with a period of free or perhaps reduced rent. This is commonly referred to as a(n): A. tenant improvement allowance B. concession C. sublease D. expense stop
B. concession
19. Johnson Builders is in the new residential construction business. They built a house that sat empty for 6 months after its completion. This type of property would be categorized as a: A. personal residence B. dealer property C. trade or business property D. investment property
B. dealer property
3. Under certain circumstances, investors are permitted to reduce the amount of the taxable income that they report by an amount that is intended to reflect the wear and tear of an asset over time. This is commonly referred to as: A. appreciation B. depreciation C. capital gains D. capital losses
B. depreciation
7. In commercial leases, rents do not necessarily have to be kept constant over the life of the lease term. One option is for there to be pre-specified increases in the contract rental rate over time, sometimes referred to as "step-ups" or "escalations." This type of rent treatment is commonly referred to as: A. flat rent B. graduated rent C. indexed rent D. percentage rent
B. graduated rent
16. 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
17. A tenant who expects her business to grow may wish to have a clause included in her lease that grants her the choice to lease adjacent space as soon as it becomes available. This lease option is more commonly referred to as a: A. relocation option B. right of first refusal C. renewal option D. consideration
B. right of first refusal
20. Sharon purchased a new photocopier for her business. According to her accountant, she can deduct 1/7th of its original cost each year for the next seven years from her taxable income. This depreciation method is commonly referred to as: A. declining balance method B. straight line method C. sum of the years' digits method D. modified accelerated cost recovery system
B. straight line method
32. Given the following information, determine the unrecovered depreciable basis: Depreciable Basis: $300,000, Declining Balance Depreciation: 200%, Cost Recovery Period: 7 years. A. $42,857 B. $85,714 C. $214,286 D. $257,143
C. $214,286
18. All taxable income from investment property sales must eventually be classified as either ordinary income, depreciation recapture income, or capital gain income. What is the maximum tax rate that an investor can be charged on depreciation recapture income? A. 10% B. 15% C. 25% D. 35%
C. 25%
10. Since many commercial properties are held by limited liability corporations or limited partnerships, it is important to understand the tax consequences at the individual investor level. Individuals face different tax rates depending on the level of their taxable income. As of 2016, an individual making between $91,151 and $190,150 would fall into which of the following tax brackets? A. 15% B. 25% C. 28% D. 35%
C. 28%
30. Given the following information, calculate the straight-line depreciation rate for the second year. Cost recovery period: 27 ½ years, Date of purchase: June 12th. A. 1.67% B. 1.97% C. 3.63% D. 20.0%
C. 3.63%
21. Limited liability companies (LLCs) and limited partnerships are preferred to corporate ownership structures because these forms of ownership allow investors to obtain limited liability and avoid the double taxation faced by corporations. This tax benefit can be extremely important as the maximum capital gain rate for corporations remains at (as of 2016): A. 15% B. 25% C. 35% D. 45%
C. 35%
36. 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
27. In a net lease, the tenant is responsible for paying a clearly defined portion of the property's operating expenses. Based on your understanding of the standard definitions of "netness" in commercial leases, the tenant is responsible for which of the following in a net-net lease? A. No operating expenses B. Only property taxes C. Both property taxes and insurance D. All operating expenses
C. Both property taxes and insurance
20. The two most important determinants of the classification of an office property are age and obsolescence. Which of the following classes includes office buildings that are older and reasonably maintained, but are below current standards for one or more reasons? A. Class A office B. Class B office C. Class C office D. Investment grade property
C. Class C office
24. Newer industrial parks have begun to specialize in providing space that can be configured to suit the diverse needs of various tenants. This type of industrial space is more commonly referred to as: A. Warehouse B. Plant and Factory C. Flex space D. Research and Development
C. Flex space
26. 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
4. For most commercial property types, lease lengths can vary considerably. Therefore, both parties must tradeoff between the advantages and disadvantages associated with particular leasing terms. Owners may prefer longer leases for all of the following reasons EXCEPT: A. Delay of re-leasing costs B. Reduction of risk associated with declining interest rates C. Gain flexibility D. Stability of future cash flows
C. Gain flexibility
11. 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
22. In retail property types, rents are quoted on the basis of which of the following? A. Usable area B. Gross floor area C. Gross leasable area D. Rentable area
C. Gross leasable area
15. The potentially large amount of taxes due on sale of commercial property has caused investors and policy makers to seek ways to defer taxes on the disposition of a property. A popular option has become for investors to swap one eligible property for another in order to avoid or defer capital gains taxes. Which of the following methods for deferring taxes does this describe? A. Installment sale B. Fully-taxable sale C. Like-kind exchange D. Sale leaseback
C. Like-kind exchange
23. 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
C. Opportunistic
7. There are three main types of income subject to federal taxation. Which of the following types of income includes income generated from rental real estate investments? A. Active income B. Portfolio income C. Passive activity income D. Residual income
C. Passive activity income
2. As with any valid contract, enforceable leases must meet a number of requirements. One of these requirements is for each party to provide appropriate consideration. In a lease, which of the following constitutes the landlord's consideration? A. Promise to pay rent B. Passing on legal title to the property C. Permission to occupy the space or property D. Commission to the leasing agent
C. Permission to occupy the space or property
10. 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
4. For purposes of federal income taxes, real property is classified into four categories. With which of the following types of real estate is the investor able to reduce his taxable income to reflect the wear and tear of a property over time? A. Personal residence B. Dealer property C. Trade or business property D. Investment property
C. Trade or business property
5. Suppose a taxpayer owns an apartment complex. Under U.S. tax law, in what category would this property be classified? A. Personal residence B. Dealer property C. Trade or business property D. Investment property
C. Trade or business property
27. 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
32. All of the following constitute indirect ownership of real estate private equity EXCEPT: A. limited partnership B. limited liability company C. tenancy in common D. real estate investment trust
C. tenancy in common
2. U.S. tax law is designed to raise revenues for the operations of the federal government and to promote certain socially desirable real estate-related activities. Tax legislation is combined into a single section of the federal statutory law commonly referred to as: A. Section 1231 B. Section 1031 C. the Internal Revenue Code D. Tax Reform Act
C. the Internal Revenue Code
26. Given the following information, calculate the taxes due on sale for the following fully taxable sale. Net Sale Proceeds: $1,500,000, Adjustable Basis: $830,000, Depreciation Recapture: $150,000, Capital Gain Tax: 15%, Depreciation Recapture tax: 25%. A. $37,500 B. $78,000 C. $100,500 D. $115,500
D. $115,500
25. Given the following information, calculate the depreciation allowance for year 1. Depreciable Basis: $200,000, Declining Balance Depreciation: 175%, Cost Recovery Period: 27 years. A. $3,704 B. $6,481 C. $7,407 D. $12,963
D. $12,963
34. 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
31. Given the following information, calculate the accelerated rate of depreciation that can be applied to the unrecovered basis. Depreciable Basis: $100,000, Declining Balance Depreciation: 150%, Cost Recovery Period: 15 years. A. 3.63% B. 5.56% C. 6.67% D. 10.0%
D. 10.0%
35. Given the following information, calculate the price-FFO multiple for the following REIT. Funds from Operation: $4,000,000; Stock Price: $40; Shares Outstanding: 1,000,000 A. 0.10 B. 0.25 C. 4.00 D. 10.00
D. 10.00
17. The benefit of being classified as a capital gain is that the income is subject to a tax rate that maxes out at 20%, which may be well below the tax rates associated with depreciation recapture income and ordinary income for a particular investor. In order to qualify for the lower capital gain tax rate, the property being sold must be held for more than: A. 1 month B. 3 months C. 6 months D. 12 months
D. 12 months
13. Congressional legislation has repeatedly altered the period of time over which rental real estate may be depreciated. Currently, residential income producing property (e.g. apartments) may be depreciated over no less than: A. 3 years B. 7 years C. 15 years D. 27 ½ years
D. 27 ½ years
38. Given the following information, calculate the price-FFO multiple for the following REIT. Funds from Operation: $75,555,000; Stock Price: $17.80; Shares Outstanding: 185,000,000 A. 0.03 B. 0.14 C. 7.27 D. 43.58
D. 43.58
29. Accelerated methods of depreciation result in greater depreciation allowances than straight-line depreciation in the early years of the depreciation schedule. Suppose a personal property is eligible for a three-year cost recovery period and can be depreciated using 200 percent declining balance depreciation. Calculate the accelerated depreciation rate in the first year. A. 14.28% B. 28.57% C. 33.33% D. 66.66%
D. 66.66%
3. 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.
16. In a like-kind exchange, property owners must meet a number of conditions in order to be eligible to take advantage of this tax deferment. One criterion is for the exchange to be between "like-kind" properties. Which of the following exchanges represents an example of an eligible "like-kind" exchange? A. An apartment property for shares in a publicly traded REIT B. A retail property in the U.S. for a retail property in China C. An office property for a principal residence. D. A retail property for an office property, both within the U.S.
D. A retail property for an office property, both within the U.S.
5. Though difficult to accurately measure, the market value of U.S. real estate held by non-real estate corporations is estimated to exceed $12.5 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
12. Of the $3.97 trillion in outstanding mortgage debt in the U.S., approximately $2.96 trillion is privately held by institutional and individual investors. Which of the following investor groups is the largest single source of private mortgage funds? A. Individual investors B. Life insurance companies C. Government Sponsored Enterprises D. Commercial banks
D. Commercial banks
29. Real estate private equity funds have been used to facilitate investment across the risk-return spectrum. All of the following are characteristics of investments by core funds EXCEPT: A. High quality property B. Properties located in large metropolitan areas C. Strong leases D. High expected returns
D. High expected returns
6. Distinguishing between the four categories of real estate for federal tax purposes can be misleading at times. Which of the following categories includes properties that are held primarily for capital appreciation? A. Personal residence B. Dealer property C. Trade or business property D. Investment property
D. Investment property
18. 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
23. Homeowners receive preferential tax treatment under current federal income tax laws. The benefits that homeowners receive from this treatment include all of the following EXCEPT: A. Appreciation in the value of the home that has occurred since the time of purchase is excluded from federal taxable income B. Homeowners can deduct their mortgage interest expenses on both first (primary) and second homes from federal taxable income C. Homeowners can deduct local property taxes from federal taxable income D. Losses on the sale of a personal residence can be deducted from federal taxable income
D. Losses on the sale of a personal residence can be deducted from federal taxable income
6. 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
14. 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
15. 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
7. At the end of 2015, commercial banks and other financial institutions collectively owned $15 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.
25. 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
9. The choice of which method to use in constructing the contracted rental rate can also be impacted by the type of property being leased. With which of the following property types would one most expect to see a percentage rent method used? A. Apartment B. Office C. Industrial D. Retail
D. Retail
10. The rental income generated by a lease can depend significantly on the proportion of property-level operating expenses paid by the tenant. In which of the following types of leases is the tenant responsible for all operating expenses? A. Gross lease B. Net lease C. Net-net lease D. Triple net lease
D. Triple net lease
6. In contrast to rent for residential units, rent for U.S. commercial properties is typically quoted as: A. a dollar amount per month B. a dollar amount per year C. a monthly cost per square foot D. an annual cost per square foot
D. an annual cost per square foot
15. While a sublease and an assignment are two distinct choices for a tenant who wishes to transfer his rights during the term of a lease, both agreements: A. transfer all of a tenant's rights to another party B. transfer only a subset of rights to another party C. grant another party the right to cancel the original lease before expiration D. maintain that the original tenant be held liable for fulfilling the original lease unless otherwise specified
D. maintain that the original tenant be held liable for fulfilling the original lease unless otherwise specified
18. The effective rent calculation is a common measure used to compare the true cost of one lease to another. While there are a number of limitations to this methodology, the effective rent calculation captures: A. interlease risk B. re-leasing costs C. the advantages associated with lease flexibility D. the time value of money
D. the time value of money
