FIN 335 Exam 1

Segmented Market

A market is segmented if it breaks up into sub-markets. Within each segment, the same good may have a different equilibrium price.

MSA

Geographic location basic unit - "metropolitan statistical area"

The term "real property" refers to:

Land or built space

Residual Theory

Land value is the difference between the value of what is produced on the site and the cost of producing it there.

The "replacement cost" level of rent

Rent the market tends to return to. Rent just sufficient to make new development profitable.

"Over the long run, the change in location value provides a theoretical ceiling to the average capital gain of the unlevered investor in already-built property". This summarizes:

The depreciation principle

Long-run equilibrium in a DiPasquale-Wheaton "Four-Quadrant Model" (4QM) is found by:

The rectangle with vertical sides and horizontal top & bottom whose four corners just touch the four binary relationships lines in each quadrant.

The "real estate system" consists of the following three major components:

The space market, the asset market, and the development industry.

If properties in a certain market are typically selling for prices of $100/SF and they are yielding current annual net income of $8/SF, then the typical "cap rate" prevailing in this market is:

8% (8/100)

Other things being equal, which would have the lowest cap rate?

A building with long-term leases in a growing market.

Which of the following types of activity centers would you expect might have the highest land rent location premium in a polycentric city?

An "Edge City"

As opposed to the concentric ring model of urban growth, the sector model dictates that similar land uses tend to:

Cluster along rays or pie-shaped wedges emanating from the center.

In 2000 rents were $18/SF and 10 million SF of space were occupied in a certain market. By 2006 12 million SF of space were occupied, and rents were $19/SF however, the CPI (inflation) had increased more than 20 percent over this period. In this market, it appears that:

Demand is either not growing, or not going as fast as supply.

Silicon Valley is an example of:

Economies of agglomeration

An example of functional depreciation is:

Electrical conduits that are too small for modern computer-based wiring needs in an office building.

The primary centralizing (centripetal) forces acting on a city include the following, except:

High population density

In order for the real estate system to function more efficiently and effectively, it is important for:

Investors to try to forecast the economy, the space market, development activity, and the capital market.

Landowners demand a premium in the rent for a developed property before they will be willing to develop agricultural land. According to Capozza and Helsley, this is known as the:

Irreversibility premium

Improvements in transportation infrastructure will tend to:

Reduce the value of geographical location centrality

What would be the "short term" effect of an increase in demand for space usage on the following factors?

Rent - price would go up Price of real estate assets - up New development - increase

In a real estate market, "constrained supply" or rising real Long-Run Marginal Cost (upward sloping supply curve) is generally caused by:

Scarcity of buildable land due to geographic or regulatory constraints.

The basic geographical unit in real estate space markets is typically:

The metropolitan area (MSA)

Rents will tend to trend upwards and new development will tend to occur in a particular city if:

The natural vacancy rate is below the current vacancy rate

The demand side of the space market consists of potential tenants.

True

According to Central Place Theory, concentrations of human activity (eg. cities in a country, shopping centers in a metropolitan area) will tend to be located:

About evenly-spaced, with some territory around each concentration point.

Real estate space markets are segmented for all the following reasons except:

Built space is fungible.

One major cause for the natural vacancy rate to be greater than zero in a stable market is:

The irreversibility of the leasing decision causes landlords to take time to search for a good leasing deal.

According to Property Life Cycle Theory, the two components of property value are:

Structure value plus land value

According to the rank/size rule (Zipf's Law), the rank of a city's population should be approximated by knowledge of the following two factors:

The city's population and the population of the largest city in the system of cities

Which of the following is an example of the private equity market?

The commercial real estate property asset market

The "kink point" in the real estate space supply function occurs at:

The current quantity of built space and the "replacement cost" rent.

Equilibrium between current supply and demand in the space market is reflected by:

The prices (rents) and occupancy observed in the market.

If the largest city in an economically integrated region has a population of 10,000,000, then according to the rank/size rule the 5th largest city in that region should have a population of:

2,000,000 (10,000,000/5)

In the absence of foresight among asset market participants, a growth in demand for real estate assets in the capital market, holding demand in the space usage market constant, will produce which of the following short-run and long-run effects?

A short-run increase in property asset prices followed by a subsequent drop.

Which of the following statements is true about equilibrium real rents (net of inflation) in the space market over time?

An increase in demand will not necessarily produce an increase in rents, but a decrease in demand will necessarily produce a decrease in rents.

Congestion, pollution, crime, and high transportation costs are all examples of:

Centrifugal forces

If the natural vacancy rate is 10% and the current vacancy rate is 15% then you would expect:

Current rents are falling

In most American cities, improvement in transport and telecommunications technology (transport cost reduction) tends to:

Decrease land values in central locations and increase land values around the expanding periphery.

The difference between gross absorption and net absorption is best described as follows:

Gross absorption indicates the total amount of movement in the market while net absorption indicates the growth in overall demand.

Which are examples of incompatible adjacent land uses that display negative locational externalities?

Heavy industrial zone and up-scale residential neighborhood

The magnitude of the transportation costs in a production process of a given land use and the relative sensitivity of these transportation costs to distance form the city center determine:

The slope of the bid-rent function.

Which are the two fundamental markets in commercial real estate?

The space market and the asset market

According to Neighborhood Succession Theory, in a mature (fully built up) neighborhood:

Location value tends to remain about constant in real terms unless there are substantial changes in the city, under which case value might go in either direction.

The market indicator known as "months supply" is determined by all of the following except:

Point of time within the fiscal cycle