Real Estate - 5-5-21

Which of the following statement is the most accurate?

Joint ventures usually decrease the amount of equity capital the developer/borrower must invest in the project.

With an expense stop clause:

The landlord is responsible for operating expenses up to a specified level, above which increases in operating expenses become the obligation of the tenant based on the tenant's square footage.

Which statement is false concerning the limited partnership form of ownership

The limited partners cannot enjoy tax deduction benefits but the general partners can

In shopping center leases, rents are typically quoted on the basis of what type of area occupied by the tenant

Gross leasable area

Which of these loans is a life insurance company most likely to invest in?

Large office building loan (non construction)

Small to medium size real estate syndicates that develop or acquire property in a local market are most typically organized most frequently as

Limited liability company

Special allocations of income or loss are available if the form of ownership is a(n):

Limited liability company

With regard to double taxation, distributions, and the treatment of the losses, general partnerships are most like:

Limited partnership

A real estate trust generally

none of the above

A lease in which the tenant pays a rent based in part on the sales of the tenant's business is known as a:

percentage lease

Ratio analysis

serves as an initial evaluation of the adequacy of an investment's expected cash flows.

With a mezzanine loan

the borrower's promise to pay is secured by the equity interest in the borrower's limited partnership or limited liability company.

Consider a 30-year, 7 percent, fixed rate, fully amortizing mortgage with a yield maintenance provision. Relative to this mortgage, a 10-year balloon mortgage with the same interest rate and yield maintenance provisions will primarily reduce the lender's:

interest rate risk

The overall capitalization rate calculated on a potential acquisition:

is the reciprocal of the net income multiplier

Which of the following forms of ownership involve both limited and unlimited liability

limited partnerships

When the tenant pays a base rent plus some or all of the operating expenses of a property, the result is a:

net lease

The tenant is usually responsible for paying property taxes and insurance in a

net-net lease

Which of these financial firms is the lease likely to invest in a large long term mortgage loan on a shopping center?

Mortgage broker

Existing leases

Must be considered more carefully when valuing a multi-tenant office building than valuing an apartment complex

Using financial leverage on a real estate investment can be for the purpose of all of the following except:

Reduction of financial risk for the leveraged investment

Which of the following statements regarding tenant improvements is the least true in the context of commercial real estate leases?

Tenants can generally negotiate higher TIs for existing space than for space in a newly developed project

An interest-only balloon mortgage loan is commonly referred to as a(n):

bullet loan

Given the following information, what is the required equity down payment? Acquisition price: $800,000; Loan to value ratio: 75%; Total up front financing costs: 3%

$218,000

The acquisition price of a property is $380,000. The loan amount is $285,000. If the property's NOI is expected to be $22,560, operating expenses $12,250 and the annual debt service $19,987, the debt coverage ratio is approximately equal to:

1.13

Assume a retail shopping center can be purchased for $5.5 million. The center's first year NOI is expected to be $489,500. A $4,000,000 loan has been requested. The loan carries a 9.25 percent fixed contract rate, amortized monthly over 25 years with a 7-year term. What will be the property's (annual) debt coverage ratio in the first year of operations?

1.19

You are considering purchasing an office building for $2.5 million. You expect the potential gross income (PGI) in the first year to be $450k, vacancy and collection losses to be 9 percent of PGI and operating expenses and capital expenditures to be 38 percent and 4 percent respectively, of effective gross income. What is the effective gross income multiplier?

6.11

The acquisition price of a property is $380,000. The loan amount is $285,000. If the property's NOI is expected to be $22,560, operating expenses $12,250 and the annual debt service $19,987, the debt yield ratio is approximately equal to:

7.9%

You are considering purchasing an office building for $2.5 million. You expect the potential gross income (PGI) in the first year to be $450k, vacancy and collection losses to be 9 percent of PGI and operating expenses and capital expenditures to be 38 percent and 4 percent respectively, of effective gross income. What is the implied first year overall capitalization rate?

9.5 percent

Income multipliers

Are useful as a preliminary analysis tool to weed out obviously unacceptable investment opportunities.

Double taxation of the income produced by the underlying real estate is most likely to occur if the commercial properties are held in the form of a

C- corporation

Which of these lenders is most likely to provide a construction loan?

Commercial Bank

Due on sale clauses are included in commercial mortgages primarily to protect lenders from

Default risk

The equity dividend rate

Expresses before-tax cash flow as a percent of the required equity capital investment.

Lease provisions that grant the tenant the right, but not the obligation, to do something generally result in:

a higher base rent

As a tenant, you wish to turn over all rights and responsibilities of your unexpired lease term to a new tenant. If allowed to do so by the owner, you are:

assigning your leasehold interest

Which of these ratios is an indicator of the financial risk for an income property?

debt coverage ratio and loan to value ratio

Which of the following is not an operating expense associated with income producing commercial property

debt service

Commercial mortgage 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 US Treasury securities whose coupon payments to replicate the cash flows the lender will lose as a result of the early retirement of the mortgage. This is referred to as

defeasance

The operating expense ratio

expresses operating expenses as a percent of effective gross income

The typical anchor tenant in a neighborhood shopping center is a

grocery store