Questions and Answers of Real Estate Finance and Investment

what is acconting?
In order to provide mortgage financing, which of the following is not required?a) Property and casualty insuranceb) Title insurancec) First respondersd) Rapid economic growth
Access to foreign real estate investing can be achieved through all of the following except:a) A global property fundb) A cadasterc) A partnership with local developerd) Publicly traded securities
Introducing new business practices to a market is called X and generates Y:I) Market transparency II) First mover advantage III) Technology transfera) I, IIIb) I, IIc) II, IIId) III, II
Which of the following strategies can protect against currency risk:I) Currency swap II) Mortgage and rent payments in the same currency III) Mortgage and rent payments in different currenciesa) I,
Which of the following is a regulation that affects the willingness of foreign investors to invest in the U.S. property market:a) FIRPTAb) IFRSc) GAAPd) USBLM
Intrinsic to a strong securities market are all of the following except:a) Liquidityb) Transparencyc) Volatilityd) Regulation
Global property investment is always more profitable than domestic investing: true or false?
Which of the following is not involved in land registration?a) Titleb) Repatriationc) Deedd) Survey
Which of the following is not a particular risk of international investing:a) Geopoliticalb) Seismicc) Currencyd) Nationalization
Overseas investment can provide which of the following benefits:a) Diversificationb) Exposure to growth marketsc) Access to additional assetsd) All of the above
Landlords can supply which of the following incentives for corporate relocation:I) job creation tax credit II) access to lower cost capital III) moving allowance IV) tenant allowance V) lease
Which is not a factor in choosing a corporate location?a) Access to transportationb) Sufficient utilitiesc) Availability of skilled labord) Availability of greenhouse gasses
Which of the following did not result from the Internet?a) Multi-channel retailingb) Telecommutingc) Value retailingd) Just-in-time sourcing
Which is a method used by corporations to reduce the amount of property on the company’s balance sheet?a) Sale leasebackb) Industrial development bondc) Historic tax creditd) enterprise zone
Which is not a government incentive used for corporate relocation?a) Loan guaranteeb) Economic impact studyc) New Market Tax Creditd) Tax incentive financing
Landlords can supply which of the following incentives for corporate relocation:I) job creation tax credit II) access to lower cost capital III) moving allowance IV) tenant allowance V) lease
Which is not a factor in choosing a corporate location?a) Access to transportationb) Sufficient utilitiesc) Availability of skilled labord) Availability of greenhouse gasses
Which of the following did not result from the Internet?a) Multi-channel retailingb) Telecommutingc) Value retailingd) Just-in-time sourcing
Which is a method used by corporations to reduce the amount of property on the company’s balance sheet?a) Sale leasebackb) Industrial development bondc) Historic tax creditd) enterprise zone
Which is not a government incentive used for corporate relocation?a) Loan guaranteeb) Economic impact studyc) New Market Tax Creditd) Tax incentive financing
What is the fundamental measure of REIT operating performance?a) Net income per shareb) DSCRc) FFO per shared) IRR
An umbrella partnership allows all of the following except:a) Liquidity for owners of privately held propertiesb) Unit holders who can request REIT stockc) Sale of real estate as inventoryd) Tax
Funds available for distribution is primarily an indicator of:a) Ability to cover interest paymentsb) Ability to cover common dividendsc) Ability to finance property developmentd) Ability to issue
REITS may invest in assets at which stage of completion:a) Landb) Projects under developmentc) Construction completed with cash flowd) All of the above
Which of the following is not a major source of REIT capital?a) Public market equityb) Mortgage financingc) Issuance of corporate debtd) Investment of after tax profits
The REIT concept is:a) Used in many countriesb) Limited to companies owning U.S. assetsc) Declining in appeal to the capital marketsd) Limited to companies listed in the United States
Equity REITs generally concentrate their investment focus by:a) Property geographyb) Property typec) Life of investmentd) All of the above
Which of the following asset allocations is not possible for a REIT?a) 100% CMBSb) 30% industrial stockc) 25% of a taxable subsidiaryd) 95% real estate
Publicly traded REITs are subject to all of the following except:a) SEC disclosure requirementsb) Generally accepted accounting principlesc) Special real estate principlesd) Exchange listing
Which of the following is not true about REITs?a) Must have at least 100 ownersb) No five or fewer individuals can own greater than 50 percentc) Must pay out 75 percent of earnings and profitsd) Can
Which of the following does not provide liquidity to the housing market?a) RMBSb) Ginnie Maec) S&Lsd) DINC
Which of the following is/are the key metric(s) used to determine a buyer’s ability to afford a home purchase?I) Monthly gross income II) Real estate taxes III) Insurance costs IV) Available down
Which of the following does not represent government support of home ownership?a) LIHTCb) Section 8c) FHA mortgage guaranteed) Mortgage interest deductibility
In many cases, new housing developments require additional infrastructure. Who pays the cost of building and supporting the infrastructure?a) Developersb) Homebuyersc) Governmentd) All of the above
Which of the following would not be used to finance for rental multifamily housing?I) Construction financing II) Mini-perm III) Takeout financing IV) Inventory financing V) End loansa) IV, Vb) II,
Securities issued by which of the following financial institution are guaranteed by the full faith and credit of the U.S. government?a) Freddie Macb) Ginnie Maec) Fannie Maed) Sallie Mac
Which of the following is not a qualified construction cost for a lowincome tax credit?a) foundationb) roofc) land acquisitiond) plumbing
Which of the following apartment types is typically constructed on highcost land?a) Low-riseb) Gardenc) Mid-rised) High-rise
When purchasing, which of the following types of housing does the owner not actually own title to real estate?a) Condominium apartmentb) Cooperative apartmentc) Single-family housed) Townhouse
Approximately how many housing units are there in the United States as of the 2010 census?a) 50,000,000b) 131,000,000c) 250,000,000d) 308,000,000
Assume the following circumstances in review question 8: You have $10 million of capital available to pursue this project. Predevelopment costs excluding land are expected to be $5 million. There
The site for the Cobble Creek development was priced at $40 million. In addition to an outright sale, the prior land owner originally offered a number of financing alternatives:a) An unsubordinated
Mutual of Atlanta, a large insurance company that buys properties for its real estate investment account, comes forth with an unsolicited bid for the property at $300 million. They can close in 90
A joint venture partner approaches and offers $25 million for a 40 percent share of the equity. The partner is a pension fund and would like a convertible preferred stock that pays a 6 percent
Second Bank comes in with a $180 million, seven-year, floating-rate loan proposition with a 20-year amortization schedule. The seven-year treasury is currently 3.0 percent. The swap premium to fix
First Bank has proposed a ten-year, 6 percent, fixed-rate permanent loan at$160 million with a 25-year amortization schedule. The ten year treasury bond is currently 3.5 percent. First Bank believes
At the end of the project, the developers believe the property should be valued using a 6 percent cap rate on the $20 million NOI, without adjustment. How much do they believe the property is worth?
The project is expected to show NOI of $20 million in its first year of operation. The property will be managed by a third-party management firm for $500,000. Calculate the expected first-year ROA.
Cobble Creek was originally financed with $60 million of equity and a construction loan for $140 million. The construction period was eight quarters in length. The construction draws at $20 million
When you look at the pro forma interest carry for a land development loan, you must estimate all of the following except:a) Amount of drawsb) Depreciationc) Timing of drawsd) Projected interest rates
Provisions protecting lenders during development include all of the following except:a) Conversionb) Completion bondsc) Title insuranced) Holdbacks
Common land financing mechanisms include all of these except:a) Purchase for cashb) Down payment plus subordinated seller financingc) Long-term debtd) Down payment plus loan for a percentage of land
Put the stages of the land development process in the proper order:a) Contact Broker, Option, Development, Salesb) Contact Broker, Development, Option, Salesc) Development, Contact Broker, Sales,
Feasibility analysis determines whether a project is currently feasible given:a) Prevailing market rentsb) Existing land pricesc) Financing costsd) All of the above
Which category of development costs is least likely to be funded by a construction lender?a) Interest carry costb) Hard costsc) Land acquisitiond) Soft costs
Which of the following are typical contingencies prior to obtaining a permanent loan commitment?a) Exculpationb) Lease-upc) Approved design changesd) Completion by date certain
Stages of a development project include sale (S), completion and occupancy (C&O), management (M), construction (C), and land acquisition (LA). Place these in the correct sequence.a) C, C&O, M, S,
Which of the following is not a type of development financing?a) FARb) Construction loanc) Take-out loand) Mini-perm
Put the following stages of the development process in the correct order:A. Entitlement B. Site-work C. Pre development D. Pre-leasing E. Shell construction F. Tenant fit-out G. Pad delivery I. C, A,
In which order does a development transaction progress?a) site selection, entitlement, construction, tenant fit outb) entitlement, site selection, construction, tenant fit outc) site selection,
Cherry Towers is a well-leased CBD office building in a major East Coast city. It has never had occupancy below 90 percent; however, leases representing 40 percent of the rentable space are expiring
REIT has an offer of $50 million, five-year financing at 7 percent with 25-year amortization on your property. You have three choices for increasing the financing: $60 million five-year financing at
Banco de Poco offers three-year mortgage at 5 percent, a five-year mortgage at 6.50 percent, and a seven-year mortgage at 7.5 percent. What assumption about rates in years four and five would make
Bobby’s Bar B Q Shack is a rapidly expanding chain of fast and casual restaurants. The chain currently owns ten locations. Each location costs $5 million to build and generates a stabilized
Grant Industries owns a large warehouse outside of Austin, Texas. The property is currently free and clear of any encumbrances. An investor has offered to purchase the land under the warehouse for
In the event that the REIT accepts the $50 million loan, a mezz lender has offered a $15 million, ten-year loan at 13 percent, interest only. Is this a better alternative?
MB REIT owns a shopping center with adjusted NOI of $10 m. Market cap rates for similar properties are 8 percent. The property currently has a $50 million, 7 percent mortgage that expires in six
An institutional investor offers $5 million of preferred equity at an 8 percent dividend yield. What impact does this have on the original investor group’s return on equity?
The investors in Warren Woods pay taxes at 35 percent. Assume 20 percent of value is attributed to land and 27.5-year depreciation. What is the after tax return on equity? What is the maximum
An investor group is considering purchasing Warren Woods, a multifamily property with 200 units that are each 1,000 square feet. Rents are running$2.00 per square foot per month. Adjusted NOI is 50
In which of the following would an institutional investor generally earn a preferential return?a) syndicationb) REITc) JVd) corporation
Characteristics of Reg D offerings generally include all of the following except:a) limited to accredited investorsb) greater than 100 investorsc) less than 35 investorsd) exemption from registration
Which characteristics are not shared by both partnerships and corporations:a) limited liabilityb) business association Strategic Utilization of Equity by the Entrepreneur 279c) centralized
At the end of a partnership, capital account balances must be brought to:a) zerob) the amount of original cash investmentc) the sum of all cash distributedd) 10 percent
Substantial economic effect does not require:a) pro rata allocationsb) allocations that are reflected in capital accountsc) liquidations in accord with capital accountsd) restoration of deficit
Which of the following are added to capital accounts?a) income and cash investedb) income and cash distributedc) losses and cash distributedd) losses and cash invested
The opening balance of a capital account is created by:a) gain on saleb) cash contributionc) cash distributiond) allocation of losses
Which is not an option for a partnership requiring more capital?a) assess limited partnersb) assess general partnersc) borrow cashd) admit additional partners
Which of the following participants has unlimited financial responsibility for the affairs of a real estate partnership?a) limited partnerb) general partnerc) syndicatord) property manager
The responsibility for the management of a real estate partnership rests with the:a) limited partnerb) general partnerc) syndicationd) property manager
Which is not a risk associated with mortgage lending?a) Obsolescenceb) Interest rate changec) Defaultd) Prepayment 1) Which of the following protect the owner of the senior tranche of a CMBS?I.
The amount due to the lender, including costs, less the proceeds from a foreclosure sale equals the amount sought in a:a) Cash out refinancingb) Deficiency judgmentc) Junior liend) Make whole
Which is not an alternative to foreclosure?a) Workoutb) Deed in lieuc) Restructuringd) Acceleration
A loan secured by property with a further guarantee of payment by the borrower is called:a) Stranded equityb) Nonrecoursec) Covenant of Seisin Mezzanine loand) Recourse loan
Which clause allows a buyer to keep the sellers mortgage in place?a) Assignment clauseb) Assumption clausec) Due on Sale claused) Acceleration clause
Refinancing of a Subprime Loan At the end of two years, your income is now $55,000 per year. The value of your house is up to 300,000. Instead of accepting the new 9 percent interest rate, can you
Subprime Loan Underwriting as an Alternative The bank (in question 12) offers you a subprime adjustable rate loan with 30-year amortization and a teaser rate of 2 percent for the first two years,
Home Mortgage Qualification You make $50,000 per year and you want to buy a home that costs$250,000. The bank says that you can qualify for a traditional 30-year 7 percent mortgage at 80 percent
Debt Service: Impact of Amortization Little John Investors owns a 30,000-square-foot big box store on a triple net lease to King Size Lots. The property is subject to a ten-year 7 percent
Maximum Loan Size The maximum amount that the Stage Coach Bank and Trust will lend is determined by the bank credit committee’s loan underwriting standard.This standard looks at the property
Structuring a Workout You can no longer service your loan on Bluestone Park (from question 8).You use your own cash to support the deficit on the property. At the end of year 6, you are out of cash
Does the property generate enough cash in year 6 to service the debt?
Cash flow declines 15 percent year over year in each of years 4 thru
A downdraft hits the real estate market and tenants start leaving Bluestone Park (from question 7) at the end of year
Calculating Amount Available to Borrow and Amortization Bluestone Office Park generates net annual cash flow of $220,000 in year one. The net annual cash flow is estimated to grow at 5 percent per
Calculating Loan Size (Impact of LTV)The lender’s credit committee believes that no loan should be made at a loan-to-value ratio of greater than 65 percent. Assume that the bank values the property
Calculating Loan Size (Impact of Amortization)The lender on the property in question 4 also offers a 7 percent loan and requires that the loan follow a 30-year self amortization schedule during its
Calculating Loan Size (Interest Only)A property generates $100,000 in net annual cash flow. The lender requires debt service coverage of 1.25 times on a ten-year interest only loan at an 8 percent
Loan-to-Value Upmarket Builders, a builder of fine homes, owns twenty 2-acre lots in a subdivision outside of Princeton, New Jersey. The 5,000-square-foot homes built on these lots will sell for $2

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