Real Estate: Chapter 17 Sources of Commercial Debt & Equity Capital

earns income that may be taxed at both the corporate level and investor level

A C corporation:

limited liability

A major benefit to a limited partner that invests in commercial real estate through a limited partnership is:

listed on a major stock exchange

A publicly-traded REIT is one that is:

allows for limited liability for all of its shareholders

A subchapter S corporation:

a pooling of equity capital

A syndicate is:

other investors in institutional properties

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

Private financial institutions

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?

-Life insurance companies -Foreign investors -Private financial institutions

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

underperformed large cap stocks over the last 3 years and 5 years outperformed large cap stocks over the last 10, 15, 20, and 25 years

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

single-taxation, limited liability, and special allocations

According to the text, the chosen form of real estate ownership is driven primarily by a desire for:

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

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

intermediary

An entity that arranges investments in commercial real estate and then sells claims on those investments to the ultimate, capital providing, investors is often referred to as a(n):

inadequate portfolio diversification

An implicit cost of direct ownership relative to joint ownership, especially for smaller, less wealthy investors, is

separate account with an investment manager

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

is collected over several years as the fund acquires more property.

An investor's total capital commitment to a closed-end real estate fund:

disproportionate

Because of the large amounts of capital they have to invest, pension funds have an influence on commercial real estate markets that is _____ to the percentage of properties they own

A single commercial mortgage loan A pool of commercial mortgages

CMBS can be backed by which of the following?

real estate obtained through foreclosure on mortgage loans

Commercial banks and other private financial institutions collectively owned $49 billion in commercial real estate equity in late 2018. The majority of this $49 billion resulted from:

less ability to diversify their overall portfolio

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

it can avoid paying taxes at the entity level

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

Risk sharing Decision making control Access to talented managers/sponsors

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

Opportunistic fund

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

Core fund

On the risk-return spectrum, which of the following private equity fund types tends to invest primarily in "Class A" properties with limited use of leverage?

Paul will probably receive disproportionate share of cash flows generated by the underlying property or properties.

Paul has put together a real estate investment opportunity and has formed a limited partnership to purchase the property. He will act as the general partner. Which of the following statements are true?

Limited personal liability Avoidance of double taxation

Private REITs can provide investors with which of the following?

investment portfolio diversification liquidity

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

access the expertise of a management company

Relative to direct ownership, separate accounts allow investors to:

less liquid than

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

small cap stocks

The Russell 2000 tracks the performance of a portfolio of:

short term

The construction of commercial properties is generally financed with ________ loans

tax considerations

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

private equity funds that invest in debt

The importance of ________ has grown in importance in recent years relative to traditional commercial bank lending

are open-end funds

The majority of commingled funds

is held privately by mortgage investors/lenders.

The majority of outstanding commercial mortgage debt:

pension funds

The most common investors in commingled real estate funds are:

limited liability company

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

is often referred to as a syndication is sometimes done with the intent to develop land takes place among both institutional and noninstitutional investors

The pooling of equity capital by investors to purchase real estate:

buy or originate mortgage loans

The primary investment strategies of REITs are to develop or acquire properties directly or:

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

The primary risk of development and construction lending is:

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

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

false

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

true

True or false: Foreign investors are often active investors in U.S. commercial real estate.

False

True or false: Life insurance companies are more likely to act as equity investors in commercial real estate than as commercial real estate lenders

true

True or false: Most equity REITs tend to focus their investment by property type and/or geographic area.

true

True or false: The CMBS market has significantly contributed to the growth of the U.S. commercial mortgage market by attracting investment capital from nontraditional mortgage investors.

management fees property acquisition fees carried interest

Typical sources of compensation for the GPs of closed-end real estate funds set up as limited partnerships include:

carried interest

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

The managing member assumes unlimited liability

Which of the following are NOT characteristics of a limited liability company?

They invest primarily in commercial properties

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

Limited liability company

Which of the following ownership forms is generally used for small, local investments that are marketed to higher income, but non-institutional investors?

-REITs are similar to real estate limited liability companies, in that they provide limited liability for all investors -REITs are similar to S corporations, in that they can avoid "double" taxation -REITs are similar to C corporations in that there is separation of ownership and control

With regard to taxation,