FIN 351 Final Exam (14-20,22)

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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

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

Although nonrecourse loans dominate the commercial mortgage lending practices of pension funds, life insurance companies, and commercial mortgage-backed security (CMBS) originators, banks are likely to require some form of a guarantee by the organizer/sponsor of the investment opportunity to make the lender whole in the event the lender suffers a loss on the loan. This protection to the lender is more commonly referred to as a: A. Credit enhancement B. Property externality C. Joint venture D. Mezzanine loan

A

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

In an analogy to the stock market, the net operating income of a property can be viewed as which of the following? A. Annual dividend expected to be produced by the property B. Annual return on the value of the property C. Market value of the property D. Price-earnings ratio of the property

A

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

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: A. nonrecourse loan B. mini-perm loan C. partially amortizing loan D. interest-only loan

A

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

Partially amortizing mortgage loans require periodic payments of principal, but are not paid off completely over the loan's term to maturity. Instead, the balance of the principal amount is paid at maturity in what is commonly referred to as a: A. balloon payment B. early payment C. up-front payment D. payment cap

A

Prior to determining the treatment of capital expenditures in the calculation of NOI, it is important to distinguish these costs from operating expenses. In contrast to operating expenses, capital expenditures: A. add to the market value of the property B. are deductible for tax purposes in the year in which they are paid. C. are necessary to keep the property operating and competitive in its local market. D. may include minor repairs that do not add to the property's useful life.

A

Profitability ratios, income multipliers, and financial risk ratios can be used to provide a quick assessment of a property's relative value. Which of the following ratios measures the overall income-producing ability of the property? A. Capitalization rate B. Equity dividend rate C. Debt coverage ratio D. Operating expense ratio

A

Single year return measures and ratios can be categorized into three groups: profitability ratios, multipliers, and financial ratios. All of the following are considered financial ratios EXCEPT: A. Capitalization ratio B. Operating Expense ratio C. Loan-to-value ratio D. Debt yield ratio

A

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

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

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

The yields on commercial mortgages have been approximately 2 percent higher, on average, than the yields on comparable maturity treasury securities over the past 15 years. Often considered the signature risk of commercial mortgage lending, this spread primarily represents: A. Default risk B. Interest rate risk C. Pipeline risk D. Fallout risk

A

Unlike the debt coverage ratio, the debt yield ratio (DYR) is not affected by the interest rate or amortization period of the loan; the DYR is simply a measure of how large the NOI is relative to the loan amount. Lenders who rely on this ratio are typically willing to accept a minimum DYR of A. 10% B. 20% C. 60% D. 80%

A

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

When fully amortizing loans call for equal periodic payments over the life of the loan they are known as: A. level-payment mortgages B. adjustable-rate mortgages C. interest-only mortgages D. early-payment mortgages

A

When lenders charge discount points (prepaid interest) on a loan, what impact does this have on the loan's yield? A. The yield on the loan will increase. B. The yield on the loan will decrease. C. The yield on the loan will be unaffected.

A

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

Which of the following types of loans is the most common instrument used to finance the acquisition of existing commercial property? A. Fixed-rate balloon mortgage loans B. Floating-rate mortgage loans C. Mezzanine loans D. Construction loans

A

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? A. Default risk B. Interest rate risk C. Liquidity risk D. Pipeline risk

A

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

An alternative vehicle for financing commercial property involves having the lender acquire an ownership (equity) interest in the property by supplying a portion of the required equity capital in addition to providing the permanent debt financing. This type of financing arrangement is commonly referred to as a(n): A. installment sale B. joint venture C. land sale-leaseback D. complete sale-leaseback

B

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

Given the following information, calculate the cash down payment required to purchase the specific property. Purchase Price: $500,000, Loan Amount: 80% of purchase price, Up-front financing costs: 2.5% of loan amount. A. $90,000 B. $110,000 C. $136,250 D. $200,000

B

Given the following information, calculate the going-in capitalization rate for the specific property. First-year NOI: $18,750, Acquisition price: $150,000, Equity Investment: 20%. A. 2.5% B. 12.5% C. 15.6% D. 62.5%

B

In calculating the net operating income (NOI) of a property, the "above-line" treatment of capital expenditures implies: A. capital expenditures are excluded from the calculation of NOI. B. capital expenditures are included in the calculation of NOI. C. capital expenditures are set equal to NOI. D. capital expenditures are divided by NOI.

B

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 prespecified 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

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

In contrast to residential mortgage loans, most fixed-rate commercial mortgages do not allow borrowers to freely prepay the principal on their loan. Which of the following prepayment penalties ties the penalty that borrowers pay to how far interest rates have declined since origination? A. Lockout provisions B. Yield-maintenance agreements C. Defeasance D. Curtailment

B

In order to better understand a borrower's probability of default, lenders have a number of tools at their disposal. The ratio that measures the percentage of the price (or value) of a property that is encumbered by the first mortgage is referred to as the: A. debt coverage ratio (DCR) B. loan-to-value ratio (LTV) C. break-even ratio (BER) D. price-earnings ratio (PE)

B

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

An interest-only balloon mortgage loan is commonly referred to as a(n): A. Mini-perm loan B. Mezzanine loan C. Land acquisition loan D. Bullet loan

D

One reason why adjustable-rate mortgages (ARMs) have become popular has to do with the impact that they have on the interest rate risk that is borne by the parties involved. If interest rates were to rise on a level-payment mortgage (LPM) the interest rate risk of the loan would typically be borne by: A. the borrower only B. the lender only C. both the borrower and lender D. neither the borrower nor the lender

B

Recently, 15-year mortgages have increased in popularity amongst both borrowers and lenders. Which of the following groups of borrowers would typically be the least interested in a 15-year mortgage? A. Mature households with minimal financial constraints B. First-time homebuyers C. Homeowners who are refinancing to obtain a lower rate than is available on a comparable 30-year mortgage D. Homeowners who are interested in selling their property within five years

B

Relative to residential loans, the underwriting process for commercial loans is more complicated. The commercial loan underwriting process focuses first on which of the following? A. Individual borrower's credit quality B. Income producing potential of the collateral property C. Individual borrower's wages D. Individual borrower's personal assets

B

The $6.5 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

The APR can be a controversial measure of borrowing cost because it tends to: A. overstate the true borrowing cost by assuming we hold mortgage until maturity B. understate the true borrowing cost by assuming we hold mortgage until maturity C. overstate the true borrowing cost by assuming we do not hold mortgage until maturity D. understate the true borrowing cost by assuming we do not hold mortgage until maturity

B

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

The key to meaningful valuations in real estate is to use defensible cash flow estimates. All of the following statements are true in regards to generating accurate cash flow estimates EXCEPT: A. Investors should include only those sources of income and expenses that relate directly to the income producing ability of the property. B. Investors should only consider recent events, rather than long-term trends when evaluating revenue and expense items. C. Investors should obtain information about comparable properties whenever possible. D. Investors should take into consideration local zoning, land use, and environmental controls that may impact the future flow of funds.

B

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

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

There are a number of alternatives when it comes to the capital structure for acquisitions of commercial real estate. Through which of the following lending relationships does the lender have the right to foreclose on the equity of the borrower's company in the case of default? A. Second mortgage loan B. Mezzanine loan C. Mini-perm loan D. Construction loan

B

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

To encourage borrowers to accept adjustable rate mortgages (ARMs) rather than level-payment mortgages, mortgage originators generally offer an initial short-term introductory rate that is less than the prevailing market mortgage rate. This rate is referred to as a(n): A. margin rate B. teaser rate C. index rate D. discount rate

B

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

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

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

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

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? A. Default risk B. Interest rate risk C. Liquidity risk D. Financial risk

B

Helpful in assessing the risk of lending to investors for particular projects, which of the following calculations measures the income-producing ability of the property to meet operating and financial obligations? A. Profitability ratios B. Income multipliers C. Financial risk ratios D. Income tax multipliers

C

An important piece of criteria for investors to consider when deciding between real estate investment opportunities and investing in stocks or bonds is the effect of income taxes on their return. For most investors, the effective tax rate on commercial real estate is: A. greater than the effective tax rate on a stock or bond investment B. equal to the effective tax rate on a stock or bond investment C. less than the effective tax rate on a stock or bond investment D. cannot be compared across asset classes.

C

As of 2011, nearly 88% of private commercial real estate equity was owned by "noninstitutional investors." Which of the following investor categories represents the most common form of noninstitutional ownership? A. Pension funds B. Sole proprietorship C. "local" syndications and private equity funds D. Life insurance companies

C

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

Assume that a borrower has a choice between two comparable fixed-rate mortgage loans with the same interest rate, but different mortgage terms, one being a 30-year mortgage and the other a 15-year mortgage. Under financially unconstrained circumstances, which of the following statements best describes the borrower's preference? A. The borrower would prefer the 30-year mortgage. B. The borrower would prefer the 15-year mortgage. C. The borrower would be indifferent between the two mortgages. D. The borrower is unable to compare mortgage loans of two different maturities.

C

For most commercial property types, lease lengths can vary considerably. Therefore, both parties must trade off 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

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

If mortgage rates decline significantly, borrowers may decide to prepay the principal on their loan even if they face prepayment penalties. One way that lenders protect themselves from prepayments in such circumstances is by requiring the borrower who prepays to purchase for the lender a set of U.S. Treasury securities whose coupon payments replicate the cash flows the lender will lose as a result of the early retirement of the mortgage. This process is referred to as: A. Lockout B. Yield-maintenance C. Defeasance D. Curtailment

C

In considering a 3/1 adjustable-rate mortgage (ARM), the interest rate will be fixed for how many years? A. One year B. Two years C. Three years D. Four years

C

In making single-asset real estate investment decisions, the first pass often involves calculating a series of returns, ratios, and multipliers. Which of the following is often cited as a limitation associated with this type of analysis? A. they are difficult to calculate B. they are complex to understand C. they fail to incorporate cash flows beyond the first year of the analysis D. they are rarely used by industry professionals

C

Prospective borrowers often submit loan requests directly to lenders. However, commercial loan requests can also be submitted through another channel in which a permanent lender agrees to purchase loans or consider loan requests from a mortgage banker or broker. This type of business relationship is more commonly referred to as a(n): A. installment sale B. joint venture C. correspondent relationship D. sale-leaseback

C

Required by the Truth-in-Lending Act, the annual percentage rate (APR) is reported by the lender to the borrower on virtually all U.S. home mortgage loans. The APR accounts for all of the following EXCEPT: A. All finance charges in connection with the loan, such as discount points, origination fees, and underwriting fees. B. All compensation to the originating brokers if one was used by the borrower. C. Any prepayment of principal to be made on the loan. D. Premiums for required forms of insurance

C

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

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 2012, an individual making between $$85,650 and $178,650 would fall into which of the following tax brackets? A. 15% B. 25% C. 28% D. 35%

C

Some commercial mortgages have adjustable, or floating, interest rates. The index rate to which the contract rate is tied is typically which of the following for commercial mortgages? A. The yield on a constant maturity Treasury security of the same term B. The cost of funds index (COFI) C. The London Interbank Offer Rate (LIBOR) D. The interest rate on a comparable maturity level-payment mortgage

C

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

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

The estimated market value of investible commercial real estate in the United States at the end of 2011 was approximately $6.5 trillion. In terms of market size, which of the following asset categories is most closely related to commercial real estate? A. Owner-occupied housing B. Corporate equities C. U.S. Treasury securities D. Municipal securities

C

The going-in capitalization rate can vary significantly by property quality. Which of the following classes of properties within a particular property type would be expected to have the highest cap rates? A. Class A properties B. Class B properties C. Class C properties D. Cap rates would be equal across all classes within the same property type

C

The loan-to-value ratio measures the percentage of the acquisition price (or current market value) encumbered by debt. To protect their invested capital in the event that property values do fall, commercial mortgage lenders generally require that the senior mortgage not exceed approximately what percentage of the acquisition costs? A. 60% B. 70% C. 80% D. 90%

C

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

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: A. 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.

C

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

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

While a variety of loan terms are available in a lender's mortgage menu, the most common loan term on a level-payment mortgage is: A. 7 years B. 15 years C. 30 years D. 40 years

C

n determining a property's before-tax cash flow from operations (BTCF) and net operating income (NOI), it is important to understand how each accounts for the use of financial leverage in its calculation. Which of the following statements is true in regards to how these two measures account for the use of financial leverage? A. BTCF and NOI are both levered cash flows B. BTCF is an unlevered cash flow, while NOI is a levered cash flow C. BTCF is a levered cash flow, while NOI is an unlevered cash flow D. BTCF and NOI are both unlevered cash flows

C

At the end of 2011, commercial banks and other financial institutions collectively owned $51 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

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

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

For the purposes of estimating the effective borrowing cost (EBC), only those up-front expenses associated with obtaining the mortgage should be included, not the settlement costs associated with obtaining ownership of the property. With this in mind, which of the following costs should not be included in one's calculation of EBC? A. Discount points B. Loan origination fees C. Appraisal fee D. Buyer's title insurance

D

From the borrower's perspective, the effective borrowing cost is often viewed as the implied internal rate of return (IRR), since it takes into consideration costs that the borrower faces, but which are not passed on as income to the lender. Included in this calculation are certain closing costs, which may consist of all of the following EXCEPT: A. Title insurance B. Mortgage insurance C. Recording fees D. Earnest money

D

Given the following information on a fixed-rate fully amortizing loan, determine the maximum amount that the lender will be willing to provide to the borrower. Loan Term: 30 years, Monthly Payment: $800, Interest Rate: 6%. A. $6,707 B. $9,295.15 C. $13,333 D. $133,433

D

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

In contrast to rent for residential units, rent for U.S. commercial properties is typically quoted as a(n) A) dollar amount per month. B) dollar amount per year. C) monthly cost per square foot. D) annual cost per square foot.

D

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

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: A. habendum clause B. lockout provision C. defeasance D. "bad boy carve-out" clause

D

Of the $3.2 trillion in outstanding mortgage debt in the U.S., approximately 714% is privately held by institutional and individual investors. Which of the following institutions is the largest single source of private mortgage funds? A. Savings institutions B. Life insurance companies C. Government Sponsored Enterprises D. Commercial banks

D

The benefit of being classified as a capital gain is that the income is subject to a tax rate that maxes out at 15%, 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

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

The measure of cash flow most relevant to investors in income-producing real estate is the after-tax cash flow (ATCF) from property operations. Therefore, it is important to know that the maximum federal income tax rate on individuals as of 2012 is: A. 25% B. 30% C. 33% D. 35%

D

The monthly mortgage payment divided by the loan amount is commonly referred to as the: A. loan balance B. effective borrowing cost C. lender's yield D. monthly loan constant

D

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

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

Though difficult to accurately measure, the market value of U.S. real estate held by non-real estate corporations is estimated to exceed $10 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

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

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

With the recent popularity of adjustable-rate mortgages (ARM), lenders have begun to offer ARMs with different adjustment periods. Which of the following ARM choices will most likely have the highest initial rate? A. Three-year-one-year ARM B. Five-year-one-year ARM C. Seven-year-one-year ARM D. Ten-year-one-year ARM

D

Given the following information, calculate the total amount of annual operating expenses for this income-producing property. Lawn care: $10,000, Property taxes: $24,000, Maintenance: $35,000, Janitorial: $25,000, Security: $32,000, Debt service: $145,000. A. $102,000 B. $126,000 C. $247,000 D. $271,000

b


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