RE BS 3
Suppose that an appraiser has come to the following conclusions in evaluating the subject property. Due to the dramatic shift in the perceived safety of the neighborhood, values of any residential properties in the area of the subject property have fallen by $10,000, on average. Due to the subject property's age, physical deterioration to the building accounts for an estimate of $50,000 in lost value. An evaluation of the floor plan reveals that it is quite obsolete relative to current homebuyer preferences. This has a detrimental effect on the value of the property that is estimated to be approximately $15,000. Based on your understanding of adjustments related to accrued depreciation, which of the following pertains to the adjustment for external obsolescence? CQ 4AA) $10,000B) $15,000C) $50,000D) $75,000
A) $10,000
Given the following information, calculate the debt coverage ratio of this commercial loan. CQ 4A Estimated net operating income (NOI) in the first year: $150,000Debt service in the first year: $100,000Loan amount: $1,000,000Purchase price: $1,300,000A) 0.15B) 0.67C) 1.30D) 1.50
A) 0.15
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? CQ 4AA) C CorporationB) Subchapter S CorporationC) General PartnershipD) Limited Liability Company
A) C Corporation
Construction loans are used to finance the costs associated with erecting the building or buildings on a site. All of the following would be typical of a construction loan EXCEPT: CQ
A) LTV ratios above 90 percent.
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? CQ 4AA) default riskB) interest rate riskC) liquidity riskD) 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: CQ 4AA) 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? CQ 4AA) direct investment in private commercial real estate equityB) indirect investment in private commercial real estate equityC) direct investment in private commercial real estate debtD) indirect investment in private commercial real estate debt
A) direct investment in private commercial real estate equity
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? CQ 4AA) general partnership B) limited partnershipC) C corporationD) Subchapter S corporation
A) general partnership
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: CQ 4AA) high quality property.B) properties located in large metropolitan areas.C) strong leases.D) high expected returns.
A) high quality property.
It may be appropriate for a real estate professional to utilize different approaches for estimating the market value of a property depending upon the particular property type and use. Which of the following approaches would be most applicable when considering the valuation of retail office space (i.e., which approach would receive the most weight in the valuation process)? CQ 4AA) income approachB) sales comparison approachC) cost approachD) investment approach
A) income approach
Developers may obtain a single, short-term mortgage loan from an interim lender that provides financing for the construction period, the lease-up period, and for several years beyond the lease-up stage. This loan type is more commonly referred to as a: CQ 4AA) miniperm loan.B) mezzanine loan.C) participation loan.D) bullet loan.
A) miniperm loan.
Commercial mortgage backed securities (CMBS) backed by government-sponsored enterprises (GSEs) consist entirely of mortgages from which of the following property types? CQ 4AA) multifamilyB) officeC) industrialD) retail
A) multifamily
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: CQ 4AA) nonrecourse loan.B) mini-perm loan.C) partially amortizing loan.D) interest-only loan.
A) nonrecourse loan.
A comparable property sold 4 months ago for $287,000. If the appropriate adjustment for market conditions is -0.50% per month (without compounding), what would be the adjusted price of the comparable property assuming all else is the same between the two properties? CQ 4AA) $269,780.00B) $281,260.00C) $285,565.00D) $292,740.00
B) $281,260.00
Let's assume that we are about to appraise a house using the cost approach. The home was originally constructed in the early 1900s and is one of the last of its kind in this area. The cost of constructing an exact replica of this residence is estimated to be $350,000. On our trip to the actual property, we notice that this is the only residential unit located on this particular road. Based on the current usage of adjacent real estate, we estimate that the property would be worth an additional $25,000 in its highest and best use. However, due to the dramatic shift in the perceived safety of the neighborhood, values of any remaining residential properties in the area have fallen by $20,000. Due to the home's age, we also notice that there has been a significant amount of physical deterioration to the building, amounting to an estimate of $50,000 in lost value. Since the home was built over 100 years ago, the floor plan is quite obsolete relative to current preferences. This has a detrimental effect on the value of the property that is estimated to be approximately $15,000. Given this information, determine the appraised value of the home using the cost approach. CQ 4AA) $265,000B) $290,000C) $350,000D) $460,000
B) $290,000
Given the following information, determine the value of having an additional bedroom. Assume that the comparable properties are similar in all other attributes besides those listed in the table below. CQ 4A Comparable 1 Comparable 2 Comparable 3 Comparable 4 Time Sold Today 1 Year Ago Today 1 Year Ago Bathrooms 2 2 2 3 Bedrooms 3 3 4 3 Sale Price $375,000 $365,000 $380,000 $367,500 A) $2,500B) $5,000C) $7,500D) $10,000
B) $5,000
Given the following information, calculate the funds from operation (FFO): CQ 4ANet income: $44,245,000Gain/losses from infrequent and unusual events: $50,000Amortization of tenant improvements: $575,000Amortization of leasing expenses: $133,000Depreciation (real property): $30,906,000.A) $12,581,000B) $75,809,000C) $75,859,000D) $75,909,000
B) $75,809,000
Given the following information, calculate the loan-to-value ratio of this commercial loan. CQ 4A Estimated net operating income in the first year: $150,000Debt service in the first year: $100,000Loan amount: $1,000,000Purchase price: $1,300,000A) 0.08B) 0.77C) 1.30D) 1.75
B) 0.77
Baumgartner Development is looking to purchase an office property for $11.5 million which has a projected NOI of $850,000. It can raise up to 70% in debt at an annual financing rate of 5.75%. What pre-tax rate of return can Baumgartner expect to earn on its equity investment if it avails of maximum available debt financing? A) 7.39% B) 1.64% C) 9.58% D) 11.22%
B) 1.64%
Given the following information, calculate the debt yield ratio on the following commercial property. CQ 4A Estimated Net Operating Income in the first year: $2,500,000Debt service in the first year: $960,000Loan amount: $20,000,000Purchase price: $27,300,000A) 4.8%B) 12.5%C) 68.6%D) 75.2%
B) 12.5%
Accrued depreciation is the difference between the current market value of a building and the total cost to reproduce it new. One reason for this difference is related to changes in tastes, preferences, technical innovations, or market standards. This is commonly referred to as: CQ 4AA) physical deterioration.B) functional obsolescence.C) external obsolescence.D) tax depreciation.
B) functional obsolescence.
n 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: CQ 4AA) 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.
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? CQ 4AA) default riskB) interest rate riskC) liquidity riskD) financial risk
B) interest rate risk
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? CQ 4AA) invests a significant percentage of their assets in both properties and mortgagesB) invests primarily in and operates commercial propertiesC) purchases mortgage obligationsD) purchases ownership interests in shares of pension funds and life insurance companies
B) invests primarily in and operates commercial properties
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? CQ 4AA) general partnershipB) limited partnershipC) C corporationD) 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? CQ 4AA) loan applicationB) loan commitmentC) loan underwritingD) loan document
B) loan commitment
The sequence of adjustments to the transaction price of a comparable property would make no difference if all adjustments were dollar adjustments. However, if percentage adjustments are involved then the sequence does matter. In making adjustments to a comparable property to arrive at a final adjusted sales price, the proper sequence for the following adjustments would be: CQ 4AA) financing terms, market conditions, location.B) location, market conditions, financing terms.C) market conditions, location, financing terms.D) location, financing terms, market conditions.
B) location, market conditions, financing terms.
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? CQ 4AA) closed-end commingled real estate fundB) open-end commingled real estate fundC) real estate private equity fundD) public, non-traded REIT
B) open-end commingled real estate fund
The $12.6 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? CQ 4AA) public equityB) privately held equityC) publicly traded mortgage debtD) privately held mortgage debt
B) privately held equity
Based on your understanding of the concept of a lockout provision, lenders are able to reduce their exposure to which of the following risks through its use? CQ 4AA) default riskB) reinvestment riskC) liquidity riskD) interest rate risk
B) reinvestment risk
The cost approach to valuation assumes the market value of a new building is similar to the cost of constructing it today. Which of the following terms refers to the expenditure required to construct a building of equal utility using modern construction techniques, materials, and design that eliminates outdated aspects of the structure? CQ 4AA) reproduction costB) replacement costC) fixed costD) variable cost
B) replacement cost
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? CQ 4AA) coreB) value addedC) opportunisticD) full platform
B) value added
Suppose that we observe two comparable properties that have each sold twice within the past four years. Property A sold 24 months ago for $500,000 and Property B sold 48 months ago for $575,000. If the two properties were sold today at $425,000 and $465,000, respectively, estimate the change in market conditions (percentage change in price) per month, assuming we equally weight the two properties in our analysis? CQ 4AA) −0.56%B) −0.51%C) 0.61%D) 0.68%
B) −0.51%
Given the following information, determine the value of having an additional 500 square feet of living space. Assume that the comparable properties are similar in all other attributes besides those listed in the table below. CQ 4A Comparable 1 Comparable 2 Comparable 3 Comparable 4 Time Sold Today Today 1 Year Ago Today Bathrooms 1 1 2 2 Size 3500 sq. ft 3000 sq. ft. 3500 sq. ft 3000 sq. ft. Sale Price $150,000 $140,000 $160,000 $156,000 A) $4,000B) $6,000C) $10,000D) $16,000
C) $10,000
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%. CQ 4AA) $5,637.99B) $13,895.82C) $2,196,447.59D) $2,495,479.19
C) $2,196,447.59
Given the following information, determine the final appraisal value of the subject property. CQ 4A Adjustments Market Conditions −0.50% (per month) Lot Size $25,000 (per acre) Effective Age (Years) $1,000 (per year) Living Area (Sq. Ft) $45.00 (per sq. ft.) Bath $1,250 (per bath) Bedrooms $3,000 (per bedroom) Subject Property Comparable Property Time Sold Today 4 Months Ago Lot Size (Acres) 0.83 0.80 Effective Age (Years) 8 7 Living Area (Sq. Ft) 2,197 2,383 Bath 3.5 3.5 Bedrooms 4 4 Sale Price - $287,000 A) $271,140B) $272,640C) $284,120D) $289,380
C) $284,120
Suppose that an appraiser has just completed her analysis using the cost approach to valuation. She has determined that the reproduction cost of the subject property is $370,000. If the added value of the site was $80,000 and accrued depreciation amounted to $50,000, what was the estimated value of the building using the cost approach? CQ 4AA) $320,000B) $370,000C) $400,000D) $500,000
C) $400,000
Suppose that we observe two comparable properties that have each sold twice within the past two years. Property A sold 24 months ago for $350,000 and Property B sold 18 months ago for $325,000. If the two properties were sold today at $375,000 and $340,000, respectively, estimate the change in market conditions (percentage change in price) per month, assuming we equally weight the two properties in our analysis? CQ 4AA) 0.19%B) 0.24%C) 0.28%D) 0.33%
C) 0.28%
Given the following information, calculate the price-FFO multiple for the following REIT: CQ 4A 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: $40,000,000A) 0.10B) 4.07C) 9.83D) 393.12
C) 9.83
Jakoby Investments has earned the following returns on its four asset classes along with their standard deviations. If the risk free security returned 3.5% during the same year, which asset class had the best risk-return profile? Asset ClassReturnSDLarge Stocks9.55%24.3%Real Estate10.52%21.3%Govt. Bonds6.27%8.4%Private Equity15.6%31.4% A) Large Stocks B) Govt. Bonds C) Private Equity D) Real Estate
C) Private Equity
Most real estate investment trusts (REITs) are actively managed operating companies that typically focus their investments either by property type or geographic market. As of June 2019, which of the following commercial property types represents the largest proportion of REIT market value? CQ 4AA) apartmentsB) officeC) infrastructureD) retail
C) infrastructure
he use of a mezzanine loan in the purchase of a commercial property has all of the following impacts on the borrower EXCEPT: CQ 4AA) 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.
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? CQ 4AA) coreB) value AddedC) opportunisticD) full platform
C) opportunistic
Commercial mortgage backed securities (CMBS) can be classified based on whether or not they are issued or backed by a government agency. CMBS that are not issued or backed by a government agency or more commonly referred to as: CQ 4AA) public, nonlisted.B) private label.C) private equity.D) commingled funds.
C) private equity.
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: CQ 4AA) habendum clause.B) lockout provision.C) defeasance. D) "bad boy carve-out" clause.
D) "bad boy carve-out" clause.
Given the following information, determine the value of having an additional bedroom. Assume that the comparable properties are similar in all other attributes besides those listed in the table below. CQ 4A Comparable 1 Comparable 2 Comparable 3 Comparable 4 Time Sold Today 1 Year Ago Today 1 Year Ago Bathrooms 2 2 2 3 Bedrooms 4 5 5 5 Sale Price $250,000 $265,000 $275,000 $270,000 A) $5,000B) $15,000C) $20,000D) $25,000
D) $25,000
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: CQ 4AA) 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.
Which of the following types of loans are often used to provide short-term financing for "transitional" properties (e.g., properties that are currently experiencing heightened vacancies, or that need to be redeveloped or renovated before they can be stabilized)? CQ 4AA) land acquisition loanB) land development loanC) construction loanD) bridge loan
D) bridge loan
An interest-only balloon mortgage loan is commonly referred to as a(n): CQ 4AA) miniperm loanB) mezzanine loanC) land acquisition loanD) bullet loan
D) bullet loan
Of the $4.71 trillion in outstanding mortgage debt in the U.S., approximately $3.66 trillion is privately held by institutional and individual investors. Which of the following investor groups is the largest single source of private mortgage funds? CQ 4AA) individual investorsB) life insurance companiesC) government Sponsored EnterprisesD) commercial banks
D) commercial banks
Commercial banks most commonly provide floating rate loans. However, borrowers who prefer a fixed rate can obtain an agreement that exchanges floating rate payments for a fixed rate schedule. This type of agreement is more commonly referred to as a(n): CQ 4AA) curtailment.B) defeasance.C) foreclosure.D) interest rate swap.
D) interest rate swap.
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? CQ 4AA) investment banksB) life insurance companiesC) real estate advisory firmsD) pension funds
D) pension funds
The note is the document used to create a legal debt. In most states, the note creates personal liability for residential borrowers. When mortgage lenders have access to other borrower assets in situations where the foreclosure sale price is less than the total amount of the loan outstanding, we commonly refer to this type of loan as a: CQ 4AA) nonrecourse loan.B) miniperm loan.C) partially amortizing loan.D) recourse loan.
D) recourse loan.
If all appraisal methods are appropriate for use in valuing a particular property, there is a clear order of preference that real estate professionals adhere to. Which of the following depicts the preferred order, with the most preferable approach being listed first and the least preferable listed last? CQ 4AA) sales comparison approach, cost approach, income approachB) income approach, Sales comparison approach, cost approachC) cost approach, income approach, sales comparison approachD) sales comparison approach, income approach, cost approach
D) sales comparison approach, income approach, cost approach
As part of the data analysis step in the appraisal process, it is necessary to consider the highest and best use of the property in question. In regards to determining highest and best use, all of the following statements are true EXCEPT: CQ 4AA) The proposed property use must be legally permissible.B) It must be physically possible for the property to be used in the manner specified.C) No financial limits are considered when determining the property's best use.D) The property use must provide the greatest benefit to the owner.
No financial limits are considered when determining the property's best use.
Given the following information, what adjustment would need to be made to account for the lot size difference between the Subject Property and Comparable Property? CQ 4A Adjustments Market Conditions −0.50% (per month) Lot Size $25,000 (per acre) Effective Age (Years) $1,000 (per year) Living Area (Sq. Ft) $45.00 (per sq. ft.) Bath $1,250 (per bath) Bedrooms $3,000 (per bedroom) Subject Property Comparable Property Time Sold Today 4 Months Ago Lot Size (Acres) 0.83 0.80 Effective Age (Years) 8 7 Living Area (Sq. Ft) 2,197 2,383 Bath 3.5 3.5 Bedrooms 4 4 Sale Price - $287,000 A) The price of the subject property must be adjusted upward by $750.B) The price of the subject property must be adjusted downward by $750.C) The price of the comparable property must be adjusted upward by $750.D) The price of the comparable property must be adjusted downward by $750.
The price of the comparable property must be adjusted downward by $750.
Given the following information, what adjustment would need to be made to account for the living area difference between the Subject Property and Comparable Property? CQ 4A Adjustments Market Conditions −0.50% (per month) Lot Size $25,000 (per acre) Effective Age (Years) $1,000 (per year) Living Area (Sq. Ft) $45.00 (per sq. ft.) Bath $1,250 (per bath) Bedrooms $3,000 (per bedroom) Subject Property Comparable Property Time Sold Today 4 Months Ago Lot Size (Acres) 0.83 0.80 Effective Age (Years) 8 7 Living Area (Sq. Ft) 2,197 2,383 Bath 3.5 3.5 Bedrooms 4 4 Sale Price - $287,000 A) The price of the subject property must be adjusted upward by $8,370.B) The price of the subject property must be adjusted downward by $8,370.C) The price of the comparable property must be adjusted upward by $8,370.D) The price of the comparable property must be adjusted downward by $8,370. A
The price of the comparable property must be adjusted downward by $8,370.
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: CQ 4AA) 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.
The use of financial leverage reduces the real estate investor's exposure to default risk.
When examining a REIT's financial statements, GAAP net income will: CQ 4AA) understate the funds that are available to distribute to investors as dividends since most real estate assets are depreciable.B) understate the funds that are available to distribute to investors as dividends since most real estate assets are not depreciable.C) overstate the funds that are available to distribute to investors as dividends since most real estate assets are depreciable.D) overstate the funds that are available to distribute to investors as dividends since most real estate assets are not depreciable.
understate the funds that are available to distribute to investors as dividends since most real estate assets are depreciable.
