Real Estate Management
Gross potential income (GPI) is calculated as
100% occupancy at market rent price
A commercial office building is purchased for $8,000,000. A loan is used with a 75% loan to value. The annual NOI for the property is $750,000. The annual debt service is $500,000. What is the cash-on-cash return for this property?
12.5%
At the beginning of the year, the residential housing market had 24,500 vacancies. 500 newly developed units hit the market each quarter of the year. At the end of the year, the market had 25,250 vacancies. What was the absorption rate for this market?
1250
A tenant leases space with a usable area of 25,000 sf, but pays rent based on 30,500 sf to cover their share of common areas of the building. What is this unit's "R/U ratio?"
1.22
Which of the following would put negative pressures on retail rental rates, potentially causing rents to go down?
A retail chain closes multiple stores across the city, vacating their leases.
An employer's failure to act in a reasonably prudent manner, such as performing background checks on all new employees, may lead to accusations of ______________ regarding the employer's behavior.
negligence
A building with a lower "R/U ratio" will likely cost the tenant more per square foot of usable area.
False
A general partnership is better than a sole proprietorship because the owners' liability is reduced by the number of owners in the partnership.
False
A real estate investor buys a tract of vacant land for $50,000. Ten years later, the investor sells the land for $100,000.
False
At will employment protects employers' rights to terminate an employee for any reason without potential for recourse.
False
Hiring in-house employees will always result in cost savings compared to contracted labor or outsourcing.
False
If an investor can afford to purchase a property with cash, they should because it will always produce a higher return on investment than using borrowed money.
False
In a principal-agent relationship, the principal is the real estate manager.
False
Internal promotion of an employee is not recommended because it creates a need to train two positions instead of one, increasing operating costs.
False
TRUE or FALSE: A commercial leasing agent should avoid discussing the current tenants of a building during the marketing process, to avoid claims of discrimination.
False
TRUE or FALSE: A property investor runs the numbers on an income-producing asset and identifies that the cap rate calculates at 7.5% and cash-on-cash return equals 8.6%. If the investor is seeking the highest percentage return on investment, they should purchase this property with cash and avoid a loan.
False
TRUE or FALSE: A property that strictly enforces a "no pet policy" may deny an applicant with an emotional support animal (assistance animal).
False
TRUE or FALSE: After-tax cash flow refers to the owner's dollar return after paying property taxes.
False
TRUE or FALSE: Building classifications are absolute. A Class A office building in one city, will be a Class A office building in any city.
False
TRUE or FALSE: Demographics are attributes relating to personality, values, attitudes, interests, or lifestyles.
False
TRUE or FALSE: If the parties negotiate an artificial breakpoint that is higher than the natural breakpoint, it will be beneficial for the landlord?
False
TRUE or FALSE: It is acceptable to charge a higher rent amount for a 2-bedroom unit occupied by a family of four vs. the same 2-bedroom unit occupied by a couple.
False
TRUE or FALSE: It is considered discrimination and federally illegal if private landlords reject an applicant with a Section 8 Housing Choice Voucher.
False
TRUE or FALSE: Like condominiums, cooperative owners hold an individual deed to their unit which grants them occupancy rights.
False
TRUE or FALSE: Residential leases are usually individually negotiated and unique. One property is likely to have several varying lease agreements, with unique terms, clauses, and tenant obligations for each of its tenants.
False
TRUE or FALSE: Section 8 vouchers allow low-income renters to receive subsidized housing at a tax credit property, but cannot be used in the private market.
False
TRUE or FALSE: The "building out" of a space to suit the needs of a tenant is a costly upfront expense that the owner must pay to secure a long-term tenant.
False
TRUE or FALSE: The property owner's insurance against physical damage protects the building structures, interiors, and resident's items.
False
TRUE or FALSE: The smaller the community, the more likely it offers recreational facilities such as swimming pools, tennis courts, patios, exercise rooms, etc.
False
TRUE or FALSE: Unlike residential tenants, commercial tenants do not require applications or qualifying procedures.
False
Which of the following would not impact the calculation of debt service?
Leased rental rates
TRUE or FALSE: When a resident's lease comes up for renewal, concessions to upgrade or improve the space is a preferred strategy for the owner versus giving an equal monetary concession.
True
TRUE or FALSE: When screening retail tenants, the manager should not only review financial performance, but should also investigate the retailer's operations, advertising, and customer service practices.
True
True or False: Real estate leasing and sales commissions, for both sides of the transaction, are generally paid by the owner of the property.
True
True or False: When negotiating a lease, base rent for a triple-net lease would likely be lower than base rent for a single-net lease.
True
When supply is less than demand, prices tend to rise; when supply exceeds demand, prices tend to fall.
True
A retail tenant's lease (5,430 rsf) stipulates a percentage rent rate of 6% with a base rent of $25/SF/YR. What is the monthly sales natural breakpoint for this lease?
$188,542
A property with 20 units that rent at $1,200/month has annual operating expenses equaling $120,900. A effective manager identifies ways to responsibly reduce expenses by $14,500 a year. At a cap rate of 9%, the manager would have increased the property's value by _____________.
$161,111
A manager decides to forego some preventive maintenance procedures, deferring $35,000 of expenses over the course of a year. At a cap rate of 7%, this manager increased the building's value by
$0
A resident is offered half off of their first month's rent if they sign an 18-month lease at $1,200/month. What is the effective rent for this lease?
$1,166.67/mo
A property with 20 units that rent at $1,200/month has annual operating expenses equaling $120,900. At a cap rate of 9%, the property should be valued at _________________.
$1,856,667
A retail tenant's lease (5,430 rsf) stipulates a percentage rent rate of 6% with a base rent of $25/SF/YR and an artificial breakpoint of $250,000. If gross sales for the month were $215,000, what would the tenant's rent payment be?
$11,313
A retail tenant's lease (5,430 rsf) stipulates a percentage rent rate of 6% with a base rent of $25/SF/YR. If gross sales for the month were $149,500, what would the tenant's rent payment be?
$11,313
A property with 131 units that rent at $1,078/month has annual operating expenses equaling $762,577. At a cap rate of 7.5%, the property should be valued at
$12,427,187
A commercial tenant is looking to lease a 12,500 sf space. The base rent is $14/sf/year. The owner offers a concession to reduce the rent by $1/sf/year for the first year of a five year lease. What is the effective rent for this lease?
$13.80
A retail tenant's lease (5,430 rsf) stipulates a percentage rent rate of 6% with a base rent of $25/SF/YR. If gross sales for the month were $242,000, what would the tenant's rent payment be?
$14,520
A marketing campaign costs $5,500. It attracts 37 people to inquire about the property and results in 6 new lease agreements. What is the marketing cost per prospect?
$148.65
A retail tenant's lease (5,430 rsf) stipulates a percentage rent rate of 6% with a base rent of $25/SF/YR and an artificial breakpoint of $250,000. If gross sales for the month were $320,000, what would the tenant's rent payment be?
$15,513
A property with 131 units that rent at $1,078/month has annual operating expenses equaling $762,577. An effective manager identifies ways to responsibly reduce expenses by 3% a year. At a cap rate of 7.5%, the manager would have increased the property's value by ___________________.
$305,031
A manager proposes to install motion sensors for common area lights to reduce their use when no one is around. The upgrade reduces the electric bill by $2,500 over the course of the year. If the cap rate for this building 6.5%, how much value did this improvement add?
$38,462
A five-plex generates $5,000/mo in rent and pays $2,300/mo in operating expenses. Investors have recently purchased comparable buildings, and considering the risk and income potential and the prices they paid, the average return on investment for a cash purchase is 7.25%. What should we expect this property to be valued at in this marketplace?
$446,897
A manager recommends replacing all light bulbs at the property with energy-efficient LED bulbs. The bulbs are $5 each and the property would require 450 bulbs plus $3,500 in labor costs to install them. The manager states that the energy saved would be roughly $250 each month. Roughly how much would the improvement increase the property's value (not including the original costs) if the market's cap rate was 6.5%?
$46,000
When a new commercial lease is signed, the tenant is responsible for operating expense increases over the base year. The base year was $350,000 of operating expenses for the building. The tenant is leasing 12,000 ft of a 48,000 sf building. At the end of the year, the operating expenses totaled $380,000. How much would the tenant be responsible for?
$7,500
A tenant leases 3,100 sf of usable space with an "R/U ratio" of 1.08 at $2.25/sf/mo. What would their monthly rent be?
$7,533
A marketing campaign costs $5,500. It attracts 37 people to inquire about the property and results in 6 new lease agreements. What is the conversion ratio from prospects to leases?
16.2%
A lead-based paint disclosure is necessary for any housing built prior to
1978
A manager of 320-unit, garden-style apartment community recommends installing a dog park for its residents. Local bids indicate that the park would could $33,750 to install fencing, equipment, and landscaping. The manager states that the new amenity would increase average rents by $5/month/unit. What would the payback period be for this recommendation?
21 months
At the beginning of the year, the residential housing market had 1,300 vacancies. A 200-unit community opened in the first quarter of the year, and 75 additional units were added throughout the summer and fall. At the end of the year, the market had 1,350 vacancies. What was the absorption rate for this market?
225
A manager recommends replacing all light bulbs at the property with energy-efficient LED bulbs. The bulbs are $5 each and the property would require 450 bulbs plus $3,500 in labor costs to install them. The manager states that the energy saved would be roughly $250 each month. What would the payback period be for this recommendation?
23 months
A 56-unit mid-rise apartment building was constructed on a 1.3 acre parcel of land. What is the density for this construction?
43 units-per-acre
A 200-unit apartment community has a net operating income of $650,000. At an 8% cap rate, the property would be valued at $8,125,000. Through effective brand management, resident satisfaction, and strong curb appeal the real estate manager is able to increase average leased rents by $10/unit/mo. The new value calculated would be ___________.
8,425,000
A commercial office building is purchased for $2,000,000. A loan is used with a 75% loan to value. The annual NOI for the property is $120,000. The annual debt service is $75,000. What is the cash-on-cash return for this property?
9%
Which is a unique characteristic of a real estate investment trust (REIT)?
95% of its taxable income must be distributed to shareholders.
Which of the following would not be considered income-producing real estate?
A condominium collecting dues for common area maintenance
Bending Birch Apartments contains 3-story buildings, spread over seven acres in the suburbs of a local city. What apartment type would best describe this property?
A garden apartment
An individual with the following duties would best be classified as ______________________.
A leasing agent
What is the capitalization rate?
A measure for relating an asset's value to its projected income and risk
Which of the following would put negative pressures on rental rates?
A new development breaks ground, adding new rental options for tenants.
Unlike condominium managers, apartment managers are responsible for maintaining
A. occupancy levels.
How are the Consumer Price Index (CPI) and rent related?
As the CPI rises, rents would be expected to rise as well.
Which position will most likely have the strongest voice in retention (keeping) or disposition (selling) of property?
Asset Manager
Which of the following practices is most unique to retail management?
Auditing the tenant's financial records to ensure the accurate calculation of gross income.
The standard for building measurement was developed by _______________.
BOMA
A real estate investor has a loan on a commercial asset. The loan payments are calculated based on a 20-year term, but at the end of seven years, the remaining principal balance will be due to the lender. What kind of loan product is this?
Balloon Loan
Which of the following is not a primary responsibility of real estate managers?
Buying and selling real property for owners
Which governing document instructs condominium owners about which maintenance items are covered collectively and which are the responsibility of the individual owners?
Bylaws
Which of the following is the correct formula for calculating a real estate asset's cap rate?
Cap Rate = Annual NOI / Value
The ratio of a property's cash flow to the owner's cash input is known as _____________.
Cash-on-cash return.
In City A, a property that generates an annual NOI of $25,000 a year will sell for $250,000. In City B, a property that generates an annual NOI of $25,000 a year will sell for $300,000. In which city are investors signaling that investing in real estate is more risky?
City A
In City A, a property that generates an annual NOI of $25,000 a year will sell for $250,000. In City B, a property that generates an annual NOI of $25,000 a year will sell for $300,000. Which city has a higher cap rate?
City A
In City A, a property that generates an annual NOI of $125,000 a year will sell for $1,250,000. In City B, a property that generates an annual NOI of $125,000 a year will sell for $1,000,000. In which city are investors signaling that investing in real estate is riskier?
City B
Which law protects employees and applicants from discrimination in the hiring and employment process?
Civil Rights Act
Failure to separate funds, such as operating funds and trust funds, is known as __________.
Commingling
The following building is a ____________.
Condominium
Which law protects against discrimination in the sale or rental of housing, based on protected classes (ex. race)?
Fair Housing Act
Government influence on interest rates has the greatest, most direct effect on what part of real estate economics?
Debt Service
Which of the following is NOT an "Operating Expense?" A. Property Taxes B. Debt Service C. Utilities D. Management Fees
Debt Service
The payment for a real estate loan is best classified as ___________.
Debt service
What tax deduction is a noncash expense that considers the useful life of an asset?
Depreciation
At which point in the real estate cycle would you LEAST likely see rental concessions?
Development
At which point in the real estate cycle would you least likely see rental concessions (discounts)?
Development
When a unit within an apartment community is being used as a leasing office and is unavailable to rent, this would best be classified as _______________.
Economic vacancy loss
Which of the following characteristics is most unique to retail management?
Effectively attracting customers for the tenants.
Which of the following characteristics is most unique to retail management?
Effectively managing tenant mix to ensure competition is not a detriment.
A four-plex property is not individually metered for water, so the property receives one water bill. The owner pays this bill and charges 25% of the bill back to each unit monthly. When the residents pay their pro-rata share, this would be recorded on the income statement under which line item?
Expense reimbursements
Which of the following laws requires credit bureaus to supply information to a person who has been denied credit?
Fair Credit Reporting Act
TRUE or FALSE: When pre-leasing a retail development, it is common practice secure ancillary tenants before pursuing anchor tenants. Anchor tenants will take you more seriously if you have identified ancillary tenants and secured leases.
False
The day-to-day responsibilities of an individual with the job title, "Property Manager," will be the same across companies and types of real estate.
False
The residential real estate market typically lags further behind the commercial real estate market.
False
True or False: Because commercial properties involve more expensive rental space, they often require more elaborate model units and finishes to attract potential tenants.
False
True or False: In an effort to maximize a property's value, a real estate manager should focus their attention on controlling and reducing the cap rate.
False
True or False: Income taxes are considered an "operating expense."
False
True or False: Residential leases will often contain escalation clauses due to their term length and the unpredictable nature of inflation and expenses.
False
True or False: The capitalization rate for a property will change depending on how the property was financed.
False
True or False: The capitalization rate for a property will fluctuate depending on if and how the property was financed.
False
True or False: The tenant is often referred to as the "lessor" in the lease agreement.
False
True or False: When offering concessions, the textbook recommends reducing the base rent each month instead of offering one-time free rent.
False
True or False: When using the capitalization rate to calculate a property's value, the analysis is done with monthly NOI.
False
A real estate investor hires a real estate management company to manage their assets. What would be purchased to protect the investor from dishonest acts of the management company and its employees regarding the handling of the investor's money?
Fidelity bond
An agent with a requirement to provide loyalty, care, and disclosure to the principal is best identified as a/an _________.
Fiduciary
What term best describes the diminishing of a building's value because it's design no longer meets current demands for physical use and/or would require extensive retrofitting costs to meet market needs.
Functional Obsolescence
A commercial real estate investor shares with you that cap rates in the local market have been rising over the past year. Which of the following statements can best be assumed?
Investors are proportionately paying less for the income potential of commercial real estate.
A commercial real estate investor shares with you that cap rates in the local market have been falling over the past year. Which of the following statements can best be assumed?
Investors are proportionately paying more for the income potential of commercial real estate.
Why might a principal prefer that the management fee be a percentage of Effective Gross Income (EGI) instead of Gross Potential Income (GPI)?
It ties the manager's compensation to performance that includes vacancy control and other income collection.
The use of borrowed money to purchase an asset is called ____________.
Leverage
A commercial office building is purchased for $8,000,000. A loan is used with a 75% loan to value. The annual NOI for the property is $750,000. The annual debt service is $500,000. Should the investor buy this property with a loan or with cash?
Leveraged - because the ROI is higher
A lower cap rate should indicate ________________.
Lower risk.
All of the following should be goals of the professional property manager EXCEPT
Maintain 100% occupancy.
What is the document that defines the duties and responsibilities of the owner and the real estate manager, establishing their business relationship.
Management Agreement
An analysis of the general economic climate, a property's operations and competition, and strategy recommendations in line with the owner's goals defines the ______________.
Management plan.
Which is a combination of home ownership and homesite rental?
Manufactured home community
Which law requires that sex offenders register their address with law enforcement?
Megan's Law
Which housing type would most likely be concerned with the "Basic Allowance for Housing?"
Military Housing
The textbook states that "perhaps the most challenging property to manage is a/an ___________________ development"
Mixed-use
The following image is an example of a _______________.
Monument sign
The value (expected sale price) of an income-producing real estate asset can be determined using the income capitalization approach. What formula does this approach use to determine value?
NOI / Cap Rate
Neighborhood A has a cap rate of 5.4% for Class B four-plexes. Neighborhood B has a cap rate of 6.2% for Class B four-plexes. In which neighborhood are buyers/investor willing to pay a higher price for $1 of net operating income?
Neighborhood A
Neighborhood A has a cap rate of 7.4% for Class B four-plexes. Neighborhood B has a cap rate of 6.8% for Class B four-plexes. In which neighborhood are buyers/investor willing to pay a higher price for each $1 of net operating income?
Neighborhood B
Of utmost importance, property managers are directly responsible for maintaining and creating value in properties. This is done by improving the ___________ of a property, which results from optimizing rental and other income to the property and minimizing operating expenses.
Net operating income
The formula for calculating the capitalization rate is
Net operating income divided by value.
A real estate manager spends $750 on a marketing project to lease a vacant apartment. The marketing effort led to the apartment being leased at $975, and is suspected to have saved 15 days of vacancy. Was this marketing effort an effective decision?
No, the net benefit does not outweigh the costs.
Which of the following is least likely to be "Other Income" for a residential property?
Operating Expense Chargebacks
A 12-month projection of on-going income and expenses for each month for a property best describes a/an ____________.
Operating budget
After completing a market analysis, the manager recommends that the owner consider hiring a courtesy patrol officer to monitor the property in the evenings -- an amenity found at several competing properties. This recommendation is an example of a/an ______________.
Operational change
______________ can create monetary payments to the owner based on a retail tenant's business volume/revenues.
Percentage rent
Which of the following is a characteristic effecting the demand of rental housing in Anchorage?
Population is declining across the city
Debt service consists of _______________.
Principal and interest.
Which document spells out the conditions of the loan repayment, including the interest rate, term, and payment schedule.
Promissory Note
A retail lease between a regional shopping mall and a Starbucks contains a clause stating that Starbucks may not open another location within 1-mile of the mall. The intention of this clause is to "protect" the potential for percentage rent and reduce the cannibalization of sales revenue. What is this type of clause called?
Radius clause
What are the four stages of the general business economy cycle -- as defined in the textbook and lecture?
Recovery, prosperity, recession, and depression
An account where money is regularly set aside to pay future expenses like capital expenditures is best referred to as a ____________.
Reserve fund
The textbook largely defines income-producing real estate under what two subcategories?
Residential and Commercial
Which are potentially more challenging due to inherent management inefficiencies?
Scattered-site housing
What is the best term to describe unoccupied office space that does not have partition walls, ceiling tiles, electrical, or wall coverings?
Shell space
Which residential property type would you expect to be most "liquid?"
Single-family houses
The ________ has primary responsibility for the tangible asset, which the property represents, and focuses on managing the physical property - overseeing the day-to-day operations and property personnel.
Site manager
Which housing type is most likely to rent "by-the-bed?"
Student Housing
One of the most effective ways to identify current real estate rental rates and trends affecting your property is to
Survey and compare similar properties in the area.
During negotiations for a commercial lease, the tenant expresses concerns about the construction costs needed to transform the space to fit their business. If the owner is willing, what would be the most appropriate concession to offer for this scenario?
Tenant improvement allowance
What institution aims to control the supply of money in the economy by adjusting interest rates?
The Federal Reserve
According to your textbook, the major demand for real estate management expertise arose in what era?
The Great Depression
The real estate manager's compensation for duties performed under a management agreement is most commonly referred to as _____________.
The management fee.
Which of the following factors is LEAST LIKELY to influence the number of staff and their level of specialization regarding real estate management?
The neighborhood in which the properties are located
Which of the following statements is true?
The tenant mix should generate traffic that benefits all stores and does not allow competition to be a detriment.
A triplex is listed at $425,000 and generates $4,500/mo in rent. A fourplex is listed at $515,000 and generates $4,900/mo in rent. Which property has a more favorable gross rent multiplier (GRM)?
The triplex has a more favorable GRM because it would take fewer months of rent to equal the sale price.
TRUE or FALSE: The "condominium" ownership structure is not only a residential term. Office condominiums are a real estate option for businesses.
True
TRUE or FALSE: The percentage negotiated for percentage rent is largely based on a merchants expected sales volume and profit margins?
True
An investor owns a vacant lot next to their apartment building. The manager proposes doing some site work and gravel, installing a fence, and adding some security cameras of the area at a cost of $68,000. The lot could then be marketed as overflow parking or vehicle storage for campers, boats, and RVs at a cost of $75/mo/space. The finished lot would have 30 spaces, and the manager expects 70% occupancy. The market cap rate for this property is 7.5%. What is the best analysis of this project?
This was a good investment because it increased value by $252,000.
Cycles of the general business economy differ from the real estate cycles in that the
Trends in real estate lag behind trends in the general economy.
A worker that is eligible to receive overtime pay for hours worked in excess of daily or weekly maximums best defines a non-exempt employee.
True
Real estate cycles tend to exceed the heights of the peaks and the depths of the troughs of the general economic cycle.
True
TRUE OR FALSE: Commercial real estate is often valued using the Income Capitalization Approach. In this approach, when a higher cap rate is applied, it will result in a lower value.
True
TRUE or FALSE: Condominium revenue comes almost entirely from assessments to members (owners of units) and is budgeted to meet expenses and reserves.
True
TRUE or FALSE: Condominium units are individually assessed and taxed for property taxes, not the building as a whole.
True
TRUE or FALSE: In performing a comparison grid analysis, a real estate manager adjusts the rent of a comparable property upward if a feature of the comparable property is inferior to the same feature in the subject property.
True
TRUE or FALSE: It is acceptable to charge a different security deposit amount for an applicant that has a poor credit history.
True
TRUE or FALSE: It is acceptable to charge a higher rent amount for a third floor unit than a first floor unit.
True
TRUE or FALSE: More so than with commercial properties, residential tenants have an emotional as well as a monetary value attached to their rented space.
True
_____________: The actual physical area within the rented premises in which the tenant will operate and have exclusive control and possession.
Usable Area
Which of the following is NOT an operating expenses?
Vacancy loss
When identifying your target market, which of the following is not one of the four determining factors identified by the textbook?
Zoning
This concentration of density and larger buildings may define this city's ______________________.
central business district (CBD)
LEED Certification is a measure of _____________.
a building's sustainability practices in its design and operation.
The following property is a/an _______________________.
a cooperative building
The calculation of a repayment of a loan, including both principal and interest payments, is better termed _________________.
amortization
REI at the Midtown Mall would best be classified as ____________.
an anchor tenant.
The regular monthly assessments for HOA dues should include funding for the reserve account to fund long-range planning of __________________.
capital expenditures
The document containing the company's policies and procedures and employee benefits best defines the _______________.
employee manual.
Banks consider properties with up to ______ units as residential properties, eligible for special owner-occupied financing options.
four
A lease specifies that the tenant is responsible for a fixed monthly rent amount plus the electric and gas utilities. The remaining expenses for the property are the responsibility of the owner. This best describes a(n) _______________.
gross lease
Residential leases are typically ____________.
gross leases
The CPI is a common index used to measure _________.
inflation
Condominium managers are primarily concerned with
maintaining or improving the value of the property.
This building can best be described as a/an ______________.
outlet shopping center
Residential properties include spaces where ___________.
people live
A retail tenant is required to pay a minimum rent. If their gross sales exceed a predetermined amount, they can be responsible for additional rent. This best describes a(n) ____________________.
percentage lease.
All of the following are considered additional revenue EXCEPT
pet deposits.
Under HUD Section 8 housing,
rent is subsidized based on the resident's income.
If the monthly collection from condominium owners is not enough to pay for a repair or improvement, a/an __________________ may be levied to cover the expense.
special assessment
The following diagram would suggest that this building is best classified as a ______.
super-regional mall
The Landlord Tenant Act establishes criteria like _______________.
the limits, use, and distribution requirements for a residential security deposit.
The area from which the retail site will actually draw most of its customers is called a __________________.
trade area.
