FI365 Chapter 17

Important trade-offs involved in the choice between direct ownership versus investing through an intermediary include which of the following?

-Access to talented managers/sponsors -risk sharing -decision making control

According to Exhibit 17-3, the value of commercial real estate owned by pension funds exceeds the value owned by which of the following?

-Life Insurance companies -Private financial institutions

The liabilities of life insurance companies can be characterized by which of the following?

-Long-term -fairly predictable

From the data provided in Exhibit 17-2, the overall "loan-to-value" ratio associated with the $8.8 trillion investible commercial real estate market is:

45.2%

CMBS can be backed by which of the following?

-A pool of commercial mortgages -A single commercial mortgage loan

Private REITs can provide investors with which of the following?

-Avoidance of double taxation -Limited personal liability

If the per share stock price of a REIT is less than it per share net asset value (NAV), the REIT is said to be selling at:

A discount to net asset value

Which of the following forms of ownership exposes the entity to double taxation?

C corporation

The ownership form typically chosen by local syndication to attract noninstitutional investors is a:

Limited Liability Company

A subchapter S corporation:

allows for limited liability for all of its shareholders

The primary risk of development and construction lending is:

the developer will fail to complete the project in a timely manner

Individuals and institutions that invest directly in private commercial real estate:

-Are often wealthy individuals or families -Often do so in order to have more control over investment decisions -typically form a LP or LLC to limit liability

Which of the following statements are accurate?

-Equity REITs tend to focus their investments by property type and/or geographic market -Shares of listed REITs are more liquid than direct investments in commercial real estate

To avoid taxation at the entity (REIT) level, a REIT must do which of the following?

-Keep 75% of its assets invested in real estate, cash, or government securities -Have at least 100 shareholders -Make sure that 75% of its gross income is derived from real estate investments

The capital raised by equity REITs through debt and equity offerings is primarily used to:

Acquire properties

According to Exhibit 17-3, the largest percentage of private commercial real estate equity is owned by:

non-institutional investors

Investing in a ________ typically has the highest expected return and the highest expected risk for the investor.

Full Platform operating company

On the risk-return spectrum, which of the following fund types generally offers investors the highest expected return?

Optimistic fund

Investments in commercial real estate through limited liability companies are considered:

Securities

In which of the following ownership forms is there no separation of ownership and control?

Sole proprietorship

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 of they exchange for a "like-kind" property. This desire to postpone taxes largely explains the ise of which of the following ownership forms?

Tenancy-in-common

The total value of investible commercial real estate is approximately _____ trillion.

8.8

The emergence and growth of umbrella partnership REITs has been primarily driven by:

tax considerations

True or False: S corporations require more than 100 shareholders.

False

With regard to taxation,

-REITs are similar to real estate limited liability companies, in that they provide limited liability for investors -REITs are similar to C corporations in that there is separation of ownership and control -REITs are similar to S corporations, in that they experience no "double" taxation

According to the data presented in Exhibit 17-8, equity REITs have outperformed

-Small cap stocks over the last 10,15,20 and 30 years -Large cap stocks over the last 15, 20, and 30 years

Which of the following are important considerations when choosing an ownership form for real estate investment?

-The ability to share risk with other investors -Federal income tax considerations -The desire to avoid unlimited personal liability

Publicly-traded REITs have been described as mutual funds for real estate, in that they provide:

-liquidity -investment diversification

Advantages of the general partnership form of ownership include:

-the ability to create multiple classes of investors -relative ease of creation

True or False: Commercial real estate investors realize substantial tax benefits, relative to other widely used ownership forms, when investing in REITs.

False

True or False: High net worth families are typically more risk averse in their real estate investments than pension funds.

False

True or False: In a limited partnership, only one partner can be the general partner, with responsibility for the management of the entity.

False

True or False: Many individual investors who invest in commercial real estate do so through commingled real estate funds.

False

According to Exhibit 17-3, the value of commercial real estate owned by life insurance companies exceeds the value owned by which of the following?

Private financial institutions

Which of the following choices best describes the investment focus of an equity REIT?

They invest primarily in commercial properties

True or False: Limited liability companies are thought by some to be "super passthrough entities."

True

True or False: The ultimate equity investors differ from the chosen ownership form.

True

When an investor in a limited partnership receives a disproportionate share of the cash flow distributions for the underlying property, relative to her equity investment, this is referred to as:

a special allocation

An investor's total capital commitment to a real estate private equity fund:

is collected over several years as the fund acquires properties

The majority of outstanding commercial mortgage debt:

is held privately by mortgage investors/lenders

If a REIT complies with a list of conditions in an on-going basis,

it can avoid paying taxes at the entity level

Disadvantages of direct investment of many "smaller" investors include:

less ability to diversify their overall portfolio

Shares of stock in a public, nonlisted REIT are generally_________ shares of REITs that trade on a major stock exchange.

less liquid than

Commercial banks and other financial institutions collectively owned $15 billion in commercial real estate equity in 2015. The majority of this $15 billion resulted from:

real estate obtained through foreclosure on mortgage loans

Limited partnerships have long been popular ownership form for investing in real estate because:

the income their assets generate is typically taxed only once

Over the last decade, which of the following investor groups has increased their percentage ownership of a typical REIT?

Institutional investors

A REIT's net asset value is equal to the:

Market value of its assets minus the market value of its liabilities

The most common investors in commingled real estate funds are:

Pension funds

An investor's closest alternative to direct ownership is a:

Separate account with an investment manager

Assume the following information for a publicaly-traded REIT: Net (accounting) 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. Calculate the REIT's funds from operation (FFO).

$75,809,000

Advantages of using C corporation for investing in real estate include which of the following?

-Limited liability for the obligations of the corporation -Separation of ownership and control

Typical sources of compensation for the GPs of real estate private equity funds include:

-Property acquisition fees -management fees -carried interest