ESG Midterm Review

Global ESG Assets Under Management are predicted by Bloomberg to reach $50T by 2025 which would represent:

33% of all assets under management

When we consider a building, which most appropriately describes it (choose one):

A loation for activities, A place to generate rents (a factory producing rents)

Choose example(s) of rights "above" the land (choose any/all that apply):

Air rights, zoning potential, view corridors

Tom Vecchione talked about two major types of clients: space users and asset owners. His work on One Madison was working for:

Asset Owner

This agreement type is typically net, and landlord services are typically limited to capital maintenance items such as roof, envelope and life safety, in which the useful life of the improvement is longer than the lease.

Building Lease

Value = NOI / (_______)

Cap Rate

Which of the following are reasonable reasons to invest using the Principles of Responsible Investment (PRI) (choose any/all that apply):

Client demand, Financial materiality, Fiduciary duty

Of the three major asset types in the US, which is the largest by value:

Commercial Real Estate

The main difference between commercial real estate (vs. owner-occupied) is:

Commercial real estate has an intermediary between the user and the real estate

Which of the following typically has a lower return rate and the earlier claim on cash flows from an asset:

Debt

According to the reading and James Graaskamp, if developers control knowledge or tenants then the project is driven by:

Demand- a use looking for a site

According to the Geltner reading, there are three centripetal (centralizing) forces that cause cities to coalesce. These are (select three):

Economies of scale -- it is cheaper and more efficient to produce more of a good or service in larger volume at fewer sites.................Economies of agglomeration -- cost or productivity advantages to the clustering of firms or work sites physically near each other..............Positive locational externalities -- one firm benefits from the nearby location of another firm without the first firm being able to capture all the benefits for itself

According to the reading, the regulatory process of creating a subdivision is governed at the federal level and uses the same process and contracts in every state in the US.

False

As we saw in the example in class of an acquisition analyst looking at purchasing either an office building or an apartment building, all analysts can just look at the market to understand the correct cap rate to use. Therefore the choice between which to buy of these two options (office building or apartment building) was clear once Scott and Prof K explained it.

False

BOMA has a higher loss factor than REBNY.

False

Because there is less competition, it is generally accepted that private markets are less risky than public markets.

False

Co-working represents one of the recent (late 20th/early 21st century) evolutions of the nature of office work. It was primarily enabled by the invention of computers.

False

Globally, financial instruments are a larger share of the global asset market than real estate.

False

The economic law of one price states that at a given point in time the same thing cannot trade at different prices. This is why a restaurant in Memphis must have the same rental rate as a restaurant in Downtown Brooklyn, assuming we are talking about the same month and year.

False

The first cities were created due to the invention of agriculture, and served primarily as locations for markets and to purchase goods.

False

The history and purpose of cities has dominated by the use of office. Without offices, the purpose of cities is unclear. True

False

The space market is the market for ownership of real property.

False

If developers building office space build more quanity of office because they assume that the demand for office is going up in the future, but instead it stays the same, then pricing for the office space market after the new space has been completed:

Goes Down

Which of the following are potential issues with a lack of standardization around ESG measurement in investing (choose any/all that apply):

Green-washing, Information asymmetry, Temporary vs. Permanent Capital allocation

A "full service" lease refers to:

Gross Lease

Which of the following space market agreement types has the lowest risk and provides the lowest revenue (reward) for the owner of the asset:

Ground Lease

The reasonably probably and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible and results in the highest value is the definition of:

Highest and best use

Real estate is cyclical, and according to the reading (and Glenn Mueller) the cycle goes in this order: Recovery, Expansion, _______, Recession.

Hypersupply

Why is money in my hand today worth more to me than the promise of receiving that same money tomorrow (choose any/all that apply):

I can spend it today (consumption, i can invest it today, The money in the future is subject to uncertainty such as inflation, which may lower its value to me

Which of the following is best described as "double bottom line" that is: seeking to generate both financial return and social and/or environmental value?

Impact investment

The demand of the asset market is made up of:

Investors who want to buy property

Residual Land Value (choose any/all that apply):

Is a method for calculating the value of development land............Begins with the completed value and subtracts the costs of construction, subtracts profits, and substracts all other necessary items to get to the land value

If the marginal cost of supplying new space (acquisition+construction+profit) says the same, then the real estate space market supply function:

Is flat

Which of the following are true about economics (choose any/all that apply):

It is the study of scarcity and choice allocation to maximize utility...........It involves the sources of supply and demand

Real Estate, as defined in this class, includes

Land, Infrastructure, Rights that run with the land that are above the land, Improvements, Rights that are below the land

Which of the following are the criteria for highest and best use (choose any/all that apply):

Legally permissible, Physically possible, Financially feasible, Maximally Productive

According to Prof K, which of the following criteria of HBU can be changed about a property through land development (choose any/all that apply):

Legally permissible, Physically possible, Financially feasible, maximally productive

Feasibility in land development occurs when the land developer's acquisition cost of land plus the cost of the land developer's land improvements is:

Less than the land value of the new HBU

The following definition is for which type of contract of space use: "A contractual agreement calling for the owner of an asset to grant the limited right to a user to engage in specific actions on the asset, without granting possession. Usually temporary and in NYC typically revocable on 30 days notice with no penalty"

License

The space market is segmented by (choose any/all that apply):

Location, property type

Quantity demanded tends to be ________ at higher prices.

Lower

According to the Emerging Trends report from ULI, which two of the following property sectors have the highest demand for space usage (Select Two Only):

Multi-F, Industrial

Constant cash flows means the cash flow is exactly the same in each period of analysis (ie, "100, 100, 100, 100, etc"). A Variable cash flow means that the cash flow may be different in some periods of analysis (ie, "100, 50, 75, 20, 100, etc"). Which of the following functions deal with variable (as opposed to constant) cash flows?

NPV

`The four commercial real estate property types (the "four food groups") include (select the four that apply):

Office, Industrial, Multi-F, Retail

The following definition refers to which type of contract for space use: "A contractual agreement calling for the owner of an asset to convey the use of real estate for a specified term and for a specified use to an expert user in exchange for a contractual share of the net operating income"

Operating Agreement

One of the reasons public goods are undersupplied by the market is that individuals cannot be charged anything for their use.

Polis

What do we call the single current value of future cash flows, discounted at the appropriate discount rate over some length of time.

Present Value

Market equilibrium is achieved when _____ and ____ intersect on a stabilized curve.

Price, Quantity

Certain conditions may prevent market equilibrium. Market failure is an economic term applied to a situation where consumer demand does not equal the amount of a good or service supplied. Under some conditions government intervention may be indicated in order to improve social welfare. The main types of market failure include (choose any/all that apply):

Public goods, Externalities

Land, as well as any improvements and any rights running with the land that are above the land as well as any rights below the land is the definition of:

Real estate

What are the standard appraisal methods of real estate valuation? (choose any/all that apply)

Sales Comparison, Cost approach, income approach

Which of the following are examples of horizontal development (choose any/all that apply):

Single site rezoning, Urban district and neighborhood development

For which of the following agreement types is the term loss factor applicable:

Space Lease

A market is

The sum of all the participating buyers and sellers regardless of location or region

If there are more office workers in Cincinnati in the 1980's than the 1970's then the demand curve for office in the 1980's would move which direction (relative to the demand curve for office in the 1970's):

To the right

Net Operating Income or "NOI" is defined as:

Total operating revenue minus total operating expenses in a given year

A dollar today is worth more to me (in my hand) than the promise of receiving that same dollar tomorrow (sometime in the future). Therefore, if you want me to wait to receive my dollar, I want more value for that time (in other words, give me more than a dollar to make it worth it for me to wait). Scott defined the time value of money as the act of resisting an impulse to take an immediately available reward in the hope of obtaining a more-valued reward in the future.

True

A predeveloper analyzes the market, clears regulatory hurdles and may attract institutional investment to raise the value of land and sell to an end user or another land developer after about 2-5 year typical hold period.

True

According to Brian, NJ has witnessed exceptional (30% compounded) industrial rent growth, but the pricing of industrial rents is still below Brooklyn, which suggests continued growth in NJ rents.

True

According to Prof K, while there may be some "dips" or short periods of decrease, the share of population living in urbanized areas has increased constantly for 12,000 years, despite any pandemics, changes in the nature of work, or de-urbanization.

True

According to the reading, land developers must understand the dynamic of both market and regulatory forces. They must be politically astute because unlocking value in land usually depends on permission that can only be granted or denied by government agencies.

True

Although up until recently, we primarily thought of real estate and cities in terms of their economic impact, that is not in fact the story of the history of civilization -- it takes 5,000 yars before there is a primary economic purpose to cities (as defined financially, with money).

True

Despite what we learned in class from Prof K about the asset market, Brian Ker said that to him, due to e-commerce, asset location is more important than asset quality.

True

Even in a period of relatively stable overall economic growth, real estate markets are cyclical as a result of the lagged relationship between demand and supply for physical space.

True

For most of human history (12,000 years), lending money and charging interest was considered a sin or crime. Earning too much interest (usury) was also considered a sin or crime. In modern American society, "maximizing profits" is a goal of most investors, meaning that they would try to charge (and receive) the highest amount of interest possible.

True

In a typical ground lease, the developer (lessee) will pay for the construction of a building, but at the end of the term of the lease, the building becomes property of the landlord (lessor).

True

Interest rates and present value are negatively related.

True

Markets have many definitions, but it can be said that a market is the process by which the prices of goods and services are established.

True

Markets sometimes fail. But under certain conditions, markets will generate the best outcomes for consumers and society.

True

Prof K says that the price in an asset market is best described as the risk-adjusted return on the investment, since the purchase of assets is primarily driven by the value of the claim on future cash flows.

True

Supply of the space market is formed by owners who want to rent.

True

The NPV function in Excel doesn't really calculate NPV it calculates PV. The NPV function discounts every cash flow given to it, so if you want to add a time 0 cash flow you must add it outside the NPV function.

True

The direct capitalization formula is the same as the cap rate formula, just rearranged algebraically.

True

Time allows one the opportunity to postpone consumption and earn interest

True

The "asset returns" risk/reward chart lists cash, emerging market stocks, developed market stocks, bonds, high yield securities and real estate (listed there as "property"). The vertical axis of the chart is expected potential, and the horizontal is risk. So, as you move up and to the right the expected potential return ("reward") goes up, as does the expected risk. How does "Property" relate to "Bonds" in that chart? Property is _____ of Bonds.

Up and to the right

According to Prof K, which method is the most accurate for actual valuation?

Use all of them, all the time

Which of the following has the largest value?

Value of the US Single Family Housing Market

The Department of Buildings is more concerned with which of these two types of development:

Vertical development

What determines the allowable improvements on a particular piece of land?

Zoning

Raw land buyers are a type of land investor that begin the conversion of property and normally will hold property for no more than 2 years.

false

According to the real estate risk/return spectrum, opportunistic is ______ risk and _____ expected return than Value-Add.

higher, higher