REFE4

19. A building owner charges net rent of $20 in the first year, $21 in the second year, and $22 in the third year, but is providing six months of free rent in the first year as a concession. Using a 10 percent discount rate, what is the effective rent over the three years?

$17.28

18. A building owner charges net rent of $20 in the first year, $21 in the second year, and $22 in the third year. Using a 10 percent discount rate, what is the effective rent over the three years?

$20.94

36. A property is leased for $24,000 per year although market rents are currently $27,500 per year and are expected to increase by 2% per year. The property is expected to be sold at the end of year 10 based on a 10% terminal cap rate applied to the eleventh year NOI. The current lease on the property will expire at the end of year 10 so the property can be leased in the eleventh year at market rates. What is the value of the leased fee estate based on an 11.5% discount rate?

$251,298

35. A property produces a first-year net operating income of $24,000. Because of the long economic life of the building, the income is considered as a perpetuity that will grow by 2.5% per year. Using a discount rate of 9.5%, the property value is estimated at:

$342,857

24. Consider a property with NOI of $72,000 and a debt coverage ratio of 1.2 applied to first year NOI. What would be the estimated monthly mortgage payment?

$5,000

24. Expenses for a 1,000 square foot office space are $6.00 per square foot. The lease specifies an expense stop of $5.40. What is the total expense paid by the landlord?

$5,400

25. A 1,500 square foot office space is leased at $12.00 square foot. The space is vacant one month out of the year. Office expenses are $6.50 per square foot and an expense stop is set at $6.00 per square foot. What is the annual net operating income?

$7,500

29. A 1,000 square foot office space is leased at $15.00 per square foot during the first year with $2.00 step-up provisions each of the following years. The lease is gross with an expense stop set at $6.65 per square foot, and yearly expenses per square foot are as follows: $6.00, $6.65, and $7.05. The lease provides for two months of free rent at the end of the lease term. If the lease term is three years and the discount rate is 10%, what is the effective rent per square foot?

$9.50

17. For which of the following reasons would a business prefer to own space rather than lease it?

(A) The business demands specialized or unique facilities

23. Consider a building with a very long economic life. Assume at the end of year 6, NOI will be $80,000 as is expected to grow at a rate of 2 percent per year. You company's required rate of return is 12 percent. As part of your analysis, you must calculate the reversion value (REV) at the end of year 5, which would be

(C) $800,000

22. Which of the following appraisal methods is NOT considered an income approach?

(C) Factor discounting rates

21. Which of the following statements regarding the sales comparison approach to appraisal is TRUE?

(C) The comparable sales must involve transactions between unrelated individuals

34. A property is sold for $200,000. Typical financing terms are an 85% loan with a 10% interest rate over 15 years. If the before-tax cash flow is $2,000, what is the overall capitalization rate?

11.96%

30. Which of the following does the term "anchor tenant" usually refer to?

A department store in a mall

32. Which of the following is TRUE for a net lease?

All expenses are paid by the tenant

36. Which of the following leads to rent premiums?

Apartments on higher floors with elevators

33. Which of the following expenses would NOT be included in an operating statement used to calculate net operating income in the income approach to value?

Capital additions

41. Which is of the following is NOT normally considered when conducting an appraisal using the cost approach?

Capitalization rate

27. A clause in a non-anchor tenant's lease requiring the presence of an anchor tenant is referred to as a:

Co-tenancy clause

33. Which of the following tends to lower effective rents?

Concessions

40. Capitalization rates will differ from yield rates when the income is expected to __________ over time.

Decrease

38. Total possible income less any vacancy is ___.

EGI

28. Income after deducting vacancy that is available to pay expenses is referred to as

Effective gross income

28. Regarding the value of a property, an appraisal

Estimates value

37. The discount rate is a rate that a typical investor would normally require as a(n) ___ return over investment holding period.

Expected

31. Which of the following describes the function of an expense stop in a lease?

Expenses above the stop are paid by the tenant

1. The sales comparison approach to appraisal is preferred because it is the only objective appraisal approach

False

10. A gross lease is riskier for the lessor than a net lease

False

11. Net operating income is the income after deduction of mortgage payments.

False

12. A property is purchased for $350,000. Based on an annual growth rate of 3%, the resale value at the end of year 10 would be $456,671

False

12. If a lease has free rent earlier in its term, its default risk might be considered slightly higher.

False

13. The capitalization rate for a leased fee estate should always be lower than the capitalization rate for a fee simple estate

False

15. The market method or direct sales comparison method of estimating site value is not the most reliable method available

False

17. Return on investment and change in net operating income are essential factors for cost analysis.

False

18. Capitalization rate of newly constructed apartment building will be more than that of relatively old apartment building, which is comparable in all other aspects

False

2. When using the gross income multiplier approach to appraisal, potential gross income is preferred to effective gross income

False

3. One advantage of the gross income multiplier approach to appraisal is that it is most suitable for properties in which operating expenses vary widely across the properties being surveyed.

False

3. To attract anchor tenants, property owners tend to charge them lower rents. They make-up for the lower rents by charging the anchor tenant higher CAM charges.

False

4. Overage rent is rent that exceeds expenses

False

5. The term "percentage rent" refers to rent paid as a percent of space leased

False

5. When conducting an appraisal, only one of three approaches should be selected to determine the property value

False

6. A gross lease is where tenants pay all expenses

False

7. Economic obsolescence is the loss of value caused by inefficient layout of technological changes

False

7. The term "usable area" is typically synonymous with "leaseable area."

False

9. A gross income multiplier can be calculated by dividing the gross income by the sales price.

False

39. Which of the following is TRUE concerning the capitalization rate?

It expresses relationships between income and property value at a specific point in time

22. The dollar amount by which total rent exceeds base rent under a percentage lease for retail is referred to as:

Overage rent

30. Which of the following choices represents the main categories of depreciation?

Physical, external, functional

The supply of space is

Relatively inelastic in the short run, and highly elastic in the long run

35. Which of the following is FALSE regarding cap rates?

Rising interest rates generally tends to lower cap rates

34. Which of the following does the term "in-line tenants" refer to?

Smaller stores in a mall that are not anchor tenants

29. Which of the following steps normally would be used in the cost approach to value?

Subtract accrued depreciation from the replacement cost

26. A clause which requires a tenant in retail space to achieve a certain level of sales or the lease will be terminated is referred to as a

Termination clause

27. Which of the following factors is NOT part of the definition of market value?

The property has been on the open market for less than a year

1. Analysis of effective rents tends to be superior to analysis of total rents over the life of a lease.

True

10. An overall capitalization rate can be calculated by dividing the net operating income by the property value

True

11. The capitalization rate is equal to the discount rate minus any expected annual growth in income and property value

True

13. CPI adjustments are used to adjust rents by all or part of the increase in the Consumer Price Index

True

14. The equity value can be estimated by subtracting debt service from net operating income and dividing this amount by the equity dividend rate

True

16. Appraisers use bracketing in order to estimate the upper and lower range of value.

True

2. The existing stock of space cannot be adjusted in the short run, but can be increased or decreased in the long run.

True

4. The rationale for using the cost approach to appraisal is that any informed buyer would not pay more for property that what it would cost to buy the land and build the structure.

True

6. In the cost approach to value, land value can be estimated by comparing sales of vacant land that are similar to the subject land.

True

8. A building has 12 foot ceilings that cause the electric bill to be $1,200 higher per year. Depreciation caused by the ceilings can be estimated by calculating the present value of the $1,200 per year over the remaining economic life of building

True

8. The use of a CPI index in a lease contract shifts risk to the tenant.

True

9. Expense stops protect the lessee from unexpected changes in market rents.

True

21. The difference between the existing stock of space and the equilibrium occupancy is known as:

Vacancy

31. A comparable property has a feature that is superior to the subject property. What adjustment would be made in the sales comparison approach to value?

Value of the feature would be subtracted from the sales price of the comparable property

20. Which of the following is NOT a type of commercial property?

Warehouse