University of California, Los Angeles : MGMT 170/ MGMT170 - Final Notes and Exam (Answered) | Latest 2026/2027.

Real Estate Finance and Investments (MGMT 170) - UCLA University of California, Los Angeles : MGMT 170/ MGMT170 - Final Notes and Exam (Answered) | Latest 2026/2027. FINAL If the contract annual interest rate on a $2,880,000 fixed rate loan that is fully amortizing over 20 years with equal monthly payments is 6.25%, what is the effective yield to the lender if the lender charges 1.5% as an origination fee, $288 for a credit report and $3,080 for an appraisal fee and the loan is repaid after ten years? 6.49% 6.51% Use APR and Effective Yield Excel 6.46% Amortization Period: 20 Years, Maturity Date: 10 Years 6.25% In November 2023, a certified investment property appraiser was hired to appraise the value of a 72,000 square foot Safeway anchored neighborhood shopping center in Fremont, California that was last sold in 2014 to a foreign investment company based in the Cayman Islands for $26 million. The November 2023 appraised value represents the: Actual purchase price of that property Actual opinion of value by that appraiser Actual replacement cost of that property Actual market value of that property If you inherited one million dollars and wanted to put the money into a real estate mortgage investment fund that advertised it paid 9.0% interest compounded annually, approximately how many years would it take for the inheritance to double in value, before taxes, if the investment fund performed as advertised? 9 10 8 72 Rule (72/%) Applies for date it takes to double investment 11In a retail lease, a percentage rent clause generally provides that: The tenant will pay a certain percentage of the tenant’s sales or income from that location as additional rent to the landlord based on an agreed formula The tenant will pay an additional rent amount that is based on a certain percentage of the total sales from the entire shopping center The tenant will pay an additional rent amount determined by the ratio of its leased square footage relative to the total net rentable area of the entire property The tenant will reimburse the landlord for a percentage of the operating expenses above a certain amount per square foot Real estate investors prefer to use LLCs for all the following reasons, EXCEPT: In some states, even single member LLCs are permitted, whereas all limited partnerships require that there be at least two partners Although publicly traded “C” corporations have the potential to raise huge amounts of capital, they are not pass-through entities for tax purposes Limited liability companies in California must have finite life and so the properties they acquire must be sold within a certain number of years to repay the members Under the California Revised Uniform Limited Liability Company Act, an LLC can be managed by either a managing member of the LLC or by a third party manager To avoid the foreclosure of a 9,000 square foot parking lot near USC, a real estate developer was discussing alternatives with her lender. The developer bought theparking lot in an LLC for $7.2 million in 2017, with family and friends as equity investors and with a $3.6 million land loan at a 6% annual interest rate fully amortizing over 25 years with recourse to the borrower LLC. The developer planned to rezone the land from commercial use to residential use to build student housing to be completed in 2020, but it was taking years longer than she expected to get the necessary governmental approvals and by 2023 the investors were no longer able to continue making the required monthly debt service payments on the land loan. Which of the following loan workout alternatives would be LEAST likely to be acceptable to their current lender? Finding a creditworthy person to guarantee the repayment of the loan Extending the mortgage amortization period or allowing a period of interest-only payments to be made Permanently reducing the interest rate on the mortgage loan or writing down the outstanding principal balance of the loan Providing a temporary grace period during which the monthly payments are deferred and the accrued interest is added to the loan balance Bruin Properties is in escrow to buy a 175,000 square foot shopping center in Camarillo, California for $35,000,000. Bruin Properties can borrow $24,000,000 fixed rate fully amortizing over 30 years at a 6.0% annual interest rate with equal monthlypayments of principal and interest or it can borrow $28,000,000 fixed rate fully amortizing over 30 years at a 7.0% annual interest rate with equal monthly payments of principal and interest. What is the incremental annual borrowing cost for the additional $4,000,000 loan amount if each loan would be outstanding for the full 30 year term? 13.0% 7.0% 12.4% Use marginal borrowing cost excel, bigger LTV on bottom 11.5% LTV = Loan Amount / Total Cost A higher debt service coverage ratio is preferred by lenders because: A higher DSCR means more NOI is available to cover debt service payments A higher DSCR increases the risk of a borrower default A lower DSCR reduces the risk of a borrower defaultA higher DSCR means less NOI is available to cover debt service payments A 36,000 square foot office building in Emeryville, California that was 88% leased had a 2023 annual net operating income estimated to be $1,880,000 with gross leases for all its tenants and a three level subterranean parking garage with 180 parking spaces. The 2024 NOI could be increased by all the following, EXCEPT: Increasing the occupancy rate of the building by signing leases with new tenants Increasing the rental rates in new leases that are signed for the building Increasing the operating expenses by adding additional maintenance staff Increasing the parking income by charging tenants for their employee parking M-REITs, or mortgage REITs, primarily invest in real estate loans and mortgage-backed securities that are often below investment grade. When a mortgage REIT decided some years ago to re-securitize a substantial portion of its CMBS “BB” and “B” securities, it received surprisingly high investment grade ratings of “A” and “BBB” from Standard & Poor’s on the new securities that were created from the cash flows of the underlying portfolio of non-investment grade rated securities. But when the financial markets began to fall a few months later, that mortgage REIT quickly went bankrupt and the value of its “A” and “BBB” investment grade rated re-securities fell substantially. The intended purpose of the ratings agencies is:To ensure that the public does not lose money on their rated investments To help businesses and governments raise needed capital by providing them with the ratings they need to successfully sell their equity and debt securities To give investors an objective assessment of the level of risk of the rated securities To produce substantial profits for the rating agencies from the fees paid to them for giving higher ratings on investments than might otherwise be appropriate Lenders prefer a deed of trust, in states where either a deed of trust or a mortgage may be used to secure a real estate loan, for all the following reasons, EXCEPT: The lender has more flexibility in the event of a foreclosure with a deed of trust The lender can achieve a sale much faster in a non-judicial foreclosure process Foreclosure is generally more efficient if a judicial process is pursued A non-judicial foreclosure is typically a much less expensive process In September 2012, a 260,000 square foot Costco anchored shopping center was acquired in San Mateo, California for $36 million with a $26 million fully amortizing first mortgage loan from Union Bank. By 2018, the property had substantially appreciated in value and was worth $72 million and the owner wanted to access part or all of the increased equity value while paying little or no current taxes. The owner might: Trade the property for a property whose sale price is more than $54 million under Section 1031 of the Internal Revenue Code Sell the property under an installment sale contract Refinance the property with a larger loan All these answers are correctAs the COVID-19 pandemic began to spread across the globe in March 2020, property values started to fall in almost every market. By summer 2020, home values began to rise in most U.S. markets and continued to rise until late 2022, but commercial property values in some sectors, including office and retail properties, stayed soft. If you wanted to invest in real estate in late 2023, you should carefully assess all the risks, including: Market risk, interest rate risk, environmental risk Liquidity risk, capital markets risk, legislative risk Business risk, financial risk, management risk All these answers are correct A 92-year-old woman wanted to transfer the ownership of her 1,800 square foot home near Lahaina Hawaii that was worth $1.8 million to her 20-year-old granddaughter as a gift. Which of the following legal documents should she use? Grant Deed transfer ownership as a gift Promissory note Mortgage Deed of Trust A higher debt service coverage ratio is preferred by lenders because: A higher DSCR means less NOI is available to cover debt service payments A lower DSCR reduces the risk of a borrower default A higher DSCR increases the risk of a borrower default A higher DSCR means more NOI is available to cover debt service payments In the majority of states where a deed of trust can be used to secure real estate loans, like California, there are three parties to the deed of trust. Which of the following is NOT one of those three parties? TrusteeTrustor Beneficiary Escrow A Delaware LLC wanted to acquire a 300,000 square foot class “A” office building in Philadelphia for $150 per square foot that was 77% leased. Wells Fargo agreed to fund a purchase money mortgage loan with a maximum LTV of 60%. What is the minimum amount of equity that would be needed to close the acquisition $45,000,000 $27,000,000 (150 $/ft^2) * (300,000 ft^2) = $45,000,000 (Total Cost) $18,000,000 LTV = 60% → (.60)($45,000,000)= $27,000,000 (Loan Amount) $9,000,000 $45,000,000 – $27,000,000 = $18,000,000 (Equity) Alan’s real estate broker suggested that he use a quitclaim deed to sell his super cool Brentwood condo so that the buyer would: Receive assurance that the property was free from any title defects Acquire only the legal interest in the property that Alan previously held Know that all prior mortgages, liens, and other encumbrances had either been reconveyed or removed from the property’s title Be the grantor under the deed and have full recourse against the seller for any title related claimsThe most popular type of home loan is the 30-year fully amortizing constant payment mortgage loan. Which of the following properly reflects the components of the loan payments for this type of loan over the life of the loan (monthly payment, interest, principal amortization): Decreasing, Decreasing, Constant Constant, Decreasing, Increasing Constant, Increasing, Decreasing Constant, Constant, Decreasing When a real estate developer signs a construction loan, the loans is typically recourse to the developer for all the following reasons, EXCEPT: If the development project is substantially delayed or over budget, the construction lender may need to sue the developer personally to repay the construction loan Take-out lenders are not contractually obligated to fund their loan if the project is not successfully completed Development projects are much riskier than stabilized income-producing properties Construction loans are readily available from many lenders with few conditions or restrictionsA Harvard student heard from a friend at UCLA, who had recently taken an excellent real estate finance and investments course, that a “conforming” mortgage loan would likely provide her with the lowest possible interest rate on the home loan for the $1 million condo she was planning to buy on Wilshire Boulevard in Westwood. For a home loan to be a “conforming” mortgage loan, it would: Have to exceed the $1,089,300 maximum loan limit currently permitted by Fannie Mae and Freddie Mac for home loans in high cost areas like Los Angeles Require that she have a DSCR or FICO score lower than the minimums currently required by Fannie Mae and Freddie Mac for such loans Have an LTV ratio that is higher than the ratio currently approved by Fannie Mae and Freddie Mac Have to comply with the underwriting guidelines for loans that Fannie Mae and Freddie Mac can buy at the time of loan origination To get the best available interest rate and loan terms to buy a two-bedroom, two-bathroom home in Redondo Beach, California at a purchase price of $1,800,000, a young couple was told that if they were able to make a 20% down payment and took out a 30-year fully amortizing fixed rate conforming mortgage loan for the balance ofthe purchase price, they could get a loan with an annual interest rate of 6.5% on the contract loan amount, with one point charged by the lender plus a $1,500 appraisal fee and a $50 credit report fee. If the lender agreed to “net fund” the loan and deduct the points and fees from the contract loan amount at the closing so that the couple would not have to pay those fees and costs out of pocket, what would be their monthly payment of principal and interest on the loan? $9,000.96 $10,127.31 $9,101.78 APR Excel, don’t subtract points and fee because it is $10,239.50 at closing When compared to fixed rate mortgage loans, adjustable rate mortgage loans: Have less interest rate risk and less default risk for the lender Have less interest rate risk and less default risk for the borrower Have more interest rate risk and more default risk for the lender Have more interest rate risk and more default risk for the borrower All of the following are “hard cost” of construction, EXCEPT: The cost of carpeting and hardwood flooring for the interior spaces The cost of pouring concrete for the building’s foundation The cost of architectural and engineering drawings The cost of steel used in the building’s structure To get the best available interest rate and loan terms to buy a two-bedroom, two-bathroom home in Redondo Beach, California at a purchase price of $1,800,000, a young couple was told that if they were able to make a 20% down payment and took out a 30-year fully amortizing fixed rate conforming mortgage loan for the balance ofthe purchase price, they could get a loan with an annual interest rate of 6.5% on the contract loan amount, with one point charged by the lender plus a $1,500 appraisal fee and a $50 credit report fee. If the lender agreed to “net fund” the loan and deduct the points and fees from the contract loan amount at the closing so that the couple would not have to pay those fees and costs out of pocket, what portion of their first month’s payment would be principal? $1,287.36 $7,800.00 $7,713.60 $1,301.78 An office building was purchased in Phoenix, Arizona in 1985, at a time when the Internal Revenue Code allowed real property to be depreciated on an accelerated basis. US tax laws have been revised many times since then to the current 27.5 years straight line tax depreciation for residential income properties and 39 years straight line tax depreciation for non-residential income properties. If that Phoenix office property was finally sold in December, 2023, what would be the taxable income from that property for the new buyer as compared to what the taxable income would have been for that buyer if the tax law on depreciation of real estate had not changed since 1985? The taxable income will be higher now because the annual tax depreciation deductions are now higher The taxable income will be lower now because the annual tax depreciation deductions are now higher The taxable income will be lower now because the annual tax depreciation deductions are now lower The taxable income will be higher now because the annual tax depreciation deductions are now lower To acquire a 400,000 square foot industrial park in Boca Raton, Florida at a purchase price of $40 million, an investor put down 40% and borrowed $24 million with a 30-year fully amortizing fixed rate mortgage loan at an annual contract interest rate of 5% payable monthly. The borrower was charged two points by the lender that was deducted from the loan amount at closing. If the monthly payments on the loan were paid on time each month and if the loan was carried to maturity, what was the APR onthe loan? 5.38% 5.08% 5.18% APR Excel, basic just make sure to add 2 points for fees 5.28% An apartment building investor wanted to refinance one of her buildings to pull out some of the appreciated equity value tax free. Her lender required that an appraisal confirm the property’s current market value. The building had 44 units, was located north of Fountain Avenue in Hollywood, California, produced an annualized net operating income of $444,000 and had an existing first mortgage loan with a remaining principal balance of $4,444,000. The lender’s commercial property appraisal firms use various capitalization of income methodologies when appraising an investment property. Which of the following is NOT one of the capitalization of income methodologies? Capitalization of NOI Gross rent multiplier Ratio of future value Discounted present value To acquire a 400,000 square foot industrial park in Boca Raton, Florida at a purchase price of $40 million, an investor put down 40% and borrowed $24 million with a 30-year fully amortizing fixed rate mortgage loan at an annual contract interest rate of 5% payable monthly. The borrower was charged two points by the lender that was deducted from the loan amount at closing. If the monthly payments on the loan werepaid on time each month and if the loan was fully repaid at the end of 10 years with no prepayment penalty, what was the effective annual yield on the loan to the payoff date? 5.08% 5.28% APR Excel, input regularly then add 10 years under prepayment date 5.18% 5.38% The adjusted tax basis of a property can be summarized as: Sale price - capital improvements - accumulated tax depreciation Purchase Price + capital improvements - accumulated tax depreciation Sale price - sale costs - mortgage balance Purchase Price - accumulated tax depreciation - mortgage balance The maximum ownership interest in real property is: A leasehold A life estate A remainder A fee simple A high yield mortgage lender originated a portfolio of high LTV real estate loans by advertising on social media websites. The lender charged a relatively high interestrate for their high LTV loans and, given favorable market conditions, have so far experienced a lower than expected default rate on their loan portfolio. Recently, they have become concerned that the housing market may be about to experience a cyclical decline, so they hired an experienced loan broker to sell their entire loan portfolio. The market value of their loan portfolio is: The future value of the remaining principal and interest payments The loan balances multiplied by the current market interest rates The loan balances multiplied by the contract interest rates The present value of the expected future principal and interest payments Over many decades, a large publicly traded department store company had acquired hundreds of retail store buildings in good locations in major cities. Due to increasing competition from online retailers and ecommerce platforms, the company needed significant cash to reinvent its business. The department store company’s management wanted to tap the substantial appreciation in the equity value of those real estate assets to obtain substantial liquidity while retaining the use of those properties in sale-leaseback transactions. A disadvantage of their sale-leaseback transactions would be that the department store company: Must pay taxes on the capital gains upon the sale of those retail properties Will lose the future appreciation in the value of those properties Must pay rent for the use of those properties during the term of the leaseback All these answers are correct Wall Street analysts focus on an adjustment to earnings per share called funds from operations to determine the dividend paying capacity of a REIT. A main difference between EPS and FFO is: Tax depreciation Future growth rates Debt service Income taxes A 126,000 square foot office building in Plano, Texas is fully leased to the Dr.Pepper Snapple Group at a base rent of $2.50 per square foot per month. The building’s expenses total $0.90 per square foot per month and an expense stop in the Dr. Pepper lease is set at $6.00 per square foot per year. What is the annual NOI? $2,419,200 $3,024,000 $3,780,000 $3,175,200 $2.50/sq ft/month = $30.00/sq ft/year * 126,000 sq ft = $3,780,000 (Total Revenue) $.90 /sq ft/month = $10.80/sq ft/year * 126,000 sq ft = $1,360,800 (Operating Cost) Expense Cap at $6.00 → $10.80 - $6.00 = $4.80/sq ft/year * 126,000 sq ft = $604,800 (Reimbursement) → Put this into Proforma NOI excel to find NOI An Atlanta based real estate developer negotiated a $20 million fully recourse construction loan with Zions Bank to finance the construction of a new 35-unit apartment building in Park City, Utah, with a permanent take-out loan from JP Morgan Chase that would be funded upon completion. The construction lender will disburse the funds to be provided by the construction loan in: A single lump sum payment to the developer of the construction loan amount at the closing of the construction loan A single lump sum payment to the developer of the loan amount at the end of construction to reimburse the developer for the actual project costs incurred A series of payments throughout the building process to reimburse the developer for costs incurred and paid by the developer A series of payments throughout the building process to advance the developerfor anticipated construction costs in the next phase of construction An apartment building in Ithaca, New York with 72 units was financed with a $7.2 million non-recourse first mortgage loan at a 3.6% annual interest rate and an additional $3.6 million fully recourse second mortgage loan at a 7.2% annual interest rate. The owner later borrowed another $720,000 with a fully recourse third mortgage loan at a 10.8% annual interest rate. The borrower ultimately found itself in financial distress and unable to make the monthly mortgage payments on the three outstanding mortgage loans and the property went into foreclosure. What happens to the claims of the second and third mortgage lenders if the foreclosure lawsuit by the first mortgage lender includes all junior mortgage lenders and the property is sold to an unrelated third party for a net price of $6.6 million at the foreclosure sale? The mortgage liens of the junior claimants are unaffected but the loan amounts owed to them are extinguished by the foreclosure sale The mortgage liens of the junior claimants and the loan amounts owed to them are extinguished by the foreclosure sale The mortgage liens of the junior claimants are extinguished but the loan amounts owed to them are unaffected by the foreclosure sale The mortgage liens of the junior claimants and the loan amounts owed to them are unaffected by the foreclosure sale Which of the following is TRUE regarding a property’s acquisition cap rate? It is the ratio of the property’s annual net operating income at the time of acquisition and the property’s purchase price It explicitly considers projected future income and expensesIt is always lower than the property’s actual IRR post acquisition It is the rate of return that investors expect to earn on their invested equity over the life of the investment The primary advantage of a limited liability company over a limited partnership is: All members of a limited liability company have limited liability A limited liability company is a pass-through entity for tax purposes whereas a limited partnership is not a pass-through entity A limited partnership is a pass-through entity for tax purposes whereas a limited liability company is not a pass-through entity All partners in a limited partnership have limited liability Many borrowers fail to qualify for a real estate loan during times of financial distress for a variety of credit related reasons. A borrower who does not qualify for a Fannie Mae or Freddie Mac conforming mortgage loan might instead find a lender who is willing to fund a “subprime” mortgage loan for their home purchase. A subprime mortgage loan: Always has a higher borrower FICO score compared to a conforming mortgage loan Always has a lower LTV ratio than a conforming mortgage loan Always has a lower interest rate than a conforming mortgageloan Always is a non-conforming mortgage loan A real estate investor foresaw the recovery of the property markets in the US in 2010. She carefully pursued several potential real estate investments and, after thorough due diligence and with private equity financing, acquired a portfolio of industrial buildings in Brooklyn, New York, each of which had a long-term triple net lease with a high-quality credit tenant. Under a triple net lease, if property taxes, insurance, and repairs and maintenance are paid for or performed by the landlord they must be reimbursed by the: Tenant Legal owner Lender Investors Other legal entities were used by real estate investors before the limited liability company became the preferred legal entity for real estate investing across the United States, and each of those other legal entities was suboptimal for a variety of reasons. After the LLC entity was created in 1977 by the state of ____________, the other 49 states all followed and enacted their own LLC legislation, and now many states have updated their LLC laws with a version of the Uniform Limited Liability Company Act. Wyoming West VirginiaWisconsin Washington Significant legislation was enacted because of the Global Financial Crisis of , including the Housing and Economic Recovery Act of 2008 and the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010, that was designed to stabilize the financial system, support the housing market, and protect consumers. Two new federal agencies that were created as a consequence of that legislation included: Housing and Urban Development and Federal Housing Finance Agency Federal National Mortgage Association and Government National Mortgage Assoc. Federal Housing Finabureaunce Agency and Consumer Financial Protection Bureau Consumer Financial Protection Bureau and Housing and Urban Development REIT stock returns have historically not been highly correlated with the returns of the rest of the stock market, which is one of the reasons that investors find REIT stocks attractive. Including REITs in a portfolio of publicly traded stocks might enhance the returns from that investment portfolio for all the following reasons, EXCEPT: REITs typically have higher current returns due to their dividend payout requirement REIT stock prices are subject to the potentially significant swings in the stock market that may be unrelated to the performance of the REIT’s property investments REIT returns are often enhanced when inflation increases rents and property values REITs are not subject to federal income taxes if certain rules are metThree college friends decided to buy a “fixer-upper” apartment building in Modesto, California after graduating from UC San Diego in 2020. They expected to achieve a significant appreciation on their investment after they remodeled and sold the property. At the time, they could finance the acquisition with either: (A) a 25-year fully amortizing fixed rate mortgage loan payable monthly from Bank of the West with a ten percent down payment and a 6.0% annual interest rate, or (B) a 25-year fully amortizing fixed rate mortgage loan payable monthly from Cathay Bank with a five percent down payment and a 6.25% annual interest rate. What is the effective annual interest rate on the additional amount borrowed if they took the loan from Cathay Bank? 10.39% Use marginal borrowing cost excel, use random purchase price and calc 9.99% LTV using the down payments and the rest is cheese 6.25% 12.59% An apartment building in Lahaina, Hawaii was planned and designed as eighteen condominium units to be sold to individual buyers upon completion. The construction lender insisted that the real estate developer have permanent financing in place before the start of construction to take out the construction loan six months after the project’s completion. Given that the developer expected to sell all the individual condominium units within six months of the project’s completion, the developer preferred to obtain a standby permanent loan commitment to satisfy the construction lender. A standby permanent loan commitment is: An agreement by a lender to increase the loan to value ratio if the development project is completed on time and on budget An agreement by a lender to be ready to provide permanent financing for a property once construction is completed if all conditions to funding have been metAn agreement that always requires the standby permanent lender to fund its loan An agreement by a lender to be ready to fund a permanent loan on a construction project that is not completed on time or on budget All of the following are true regarding interest-only loans, EXCEPT: They result in more cash flow to the borrower than an amortizing loan They allow for a higher debt service coverage ratio They are safer for lenders because the loan balance does not amortize over time They will have balloon payments due on maturity Architectural and engineering plans and specifications were submitted to the West Covina, California planning department for a lifestyle shopping center on a one acre site that was zoned multi-family residential “R-3.” To build the shopping center on that site, the retail property developer should do all the following, EXCEPT: Obtain a construction loan and sufficient equity financing to complete the project Contribute to the political campaigns of the local city council members in exchange for their promise to deliver the approvals needed for the project Comply with all building codes and obtain a building permit from the local authorities Apply for and get a variance to build the project because it is in a residential zone If the effective annualized cost on a property’s mortgage debt is less thanthe unleveraged IRR for that property investment, then as the LTV ratio increases: The leveraged IRR will decrease and the default risk will decrease The leveraged IRR will increase and the default risk will decrease The leveraged IRR will decrease and the default risk will increase The leveraged IRR will increase and the default risk will increase The market value of a property is defined to be the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale. Implicit in this definition is the closing of a sale as of a specified date and the transfer of title from the seller to the buyer under all the following conditions, EXCEPT: The payment for the property is in cash in U.S. dollars or in financial arrangements comparable thereto with normal financing, and the price is unaffected by special or creative financing like a loan with a below market interest rate The property has been offered for sale on the open market for a minimum of six months to give the seller sufficient time to find the highest and best offer The buyer and the seller are typically motivated, and both parties are well informed or well advised The buyer and the seller are each acting in what he or she considers his or her own best interest, and neither party is under any undue pressure to buy or sellA suburban office building in Fort Worth, Texas with 36,000 square feet was purchased for $4,500,000 at an 8% cap rate. Debt service for the first year was $305,000 of which $236,000 was interest and $69,000 was principal. Annual depreciation for tax purposes was $148,000. What was the property’s first year taxable income? $212,000 Cap rate = NOI / Purchase price → NOI = Purchase price*Cap Rate $55,000 NOI = (.08)*(4,500,000) = $360,000 − 236,000−148,000 = -24,000 $124,000 Can also use financial leverage and NOI excel - $24,000 A 136,000 square foot 75% leased Walgreens anchored shopping center in Eugene, Oregon was purchased in 2011 for $33 million with a $25 million first mortgage loan at a 5.5% annual interest rate fully amortizing over 30 years but due in 10 years. As the local economy improved, the property owner was able to increase the shopping center’s occupancy to 95% and improve the rent levels in the new leases. To cash out some of the substantially increased equity value created by the higher NOI and from falling cap rates, the property owner refinanced the approximately $20 million balance of the existing first mortgage loan in 2022 with a new first mortgage loan in the amount of $35 million at an annual interest rate of 4.5% payable interest-only and due in seven years. Which of the following would NOT be a benefit of refinancing with the larger $35 million first mortgage loan? No income taxes were required to be paid on the $10 million the owner received from the cash-out refinancing The monthly mortgage payments were reduced due to the lower interest rate and interest-only nature of the new loan even though the loan principal balance increased Because the property was not sold, the property owner continued to benefit from future price appreciationThe financial risk of the investment was increased due to the larger loan A 12-unit apartment building in Newton, Massachusetts was acquired for $8,000,000 with a 70% LTV purchase money mortgage at a 5.25% annual interest rate fully amortizing over 30 years. The new owner substantially improved the building, renovating the exterior and interior. She also implemented several environmentally friendly cost-saving measures, including the installation of solar panels on the roof, that saved energy and reduced operating expenses. After two years, these upgrades and improvements led to a substantial increase in the property’s NOI to $580,000 from a net operating income of $500,000 at the time of the acquisition. What was the acquisition cap rate? 7.25% Simply, 8.25% Cap Rate = NOI / Purchase Price → 5.25% Cap Rate = 500,000/8,000,000 = 0.625 = 6.25% 6.25% A $27.0 million mortgage loan from Bank of America fully amortizing over twenty five years at a fixed annual interest rate 6.75% with equal monthly payments and a 1% prepayment penalty has been seasoned for seven years. How much will the borrower have to pay to the lender to pay off the loan at the end of the seventh year?$23,523,081 Use APR Excel Sheet, input accordingly and see answer under $27,000,000 FV and step 3 $0 $23,290,179 The real estate markets have cyclical periods of price growth and decline that repeats over time. During times of economic crisis, which of the following is generally TRUE regarding cap rates? Rising supply tends to lower cap rates Rising interest rates tend to lower cap rates Falling interest rates tend to increase cap rates Falling demand tends to increase cap rates Under current tax laws, a real estate owner can sell Property “A” in a Section 1031 “like-kind” exchange and acquire Property “B” without paying current capital gain tax in connection with the sale of Property “A” if all the following are true, EXCEPT: The seller of Property “A” does not receive any “boot” in the 1031 exchange transaction Property “B” is acquired at least six months after the closing of the sale of Property “A” Property “B” is identified in writing to an independent third party 45 days after the closing of the sale of property “A” The purchase price for Property “B” is higher than the sale price of Property “A”When a subsidiary of Google needed a much larger office space to accommodate its growing workforce, it began negotiating a new 555,000 square foot 5-year lease with five 5-year options in a beautifully renovated former industrial building in Venice, California. All the following are clauses that would likely be included in the lease agreement, EXCEPT: Allowable uses, condition of the premises, repair and maintenance obligations Loan to value ratio, debt service coverage ratio, prepayment options Assignment and subletting, alterations and improvements, renewal options Parties to the lease, base rent amount, rent increase provisions A shopping center in Miami, Florida was purchased for $16 million and was expxected to produce a first year annual NOI of $960,000. Financing was obtained at a 60% LTV ratio with a 4.5% annual interest rate payable monthly and fully amortizing over 25 years. What is the expected first year before tax cash return on invested equity? 8.25% Use financial leverage excel, input purchase price and LTV, calc cap rate 5.0% from 1st year NOI and price, input it and interest rate, see ROE for answer 6.0% 4.5%An elderly widow wanted to supplement her monthly Social Security income and was advised by her son to obtain a reverse annuity mortgage on the home she bought over 30 years ago for $2,500,000 with her late husband in Beverly Hills, California. If her home was recently appraised for $6,000,000 and if the lender’s RAM program allows for a maximum RAM loan of 90% of the appraised value, what monthly payment would be received by the widow if the RAM loan payments are to be made monthly over 10 years and if the annual interest rate on the RAM loan is 5%? $57,275 ??? $38,639 $63,639 $34,775 A 54-unit apartment building in Canton, Ohio was financed with a $10,000,000 30-year fully amortizing fixed rate mortgage loan at an annual interest rate of 4.5% payable monthly and with no loan lockout or prepayment penalties. If the borrower wanted to pay the loan back after 8 years, what would be the payoff amount? $8,008,942 Use APR Sheet, punch in numbers and answer is under FV $8,481,705 $8,913,848 $7,333,333 A 20,000 square foot development site on Nob Hill in San Francisco, California was under contract by an office building developer for $770 per buildable square foot. The existing building on the site would need to be demolished prior to the construction ofa beautiful new six-story 77,000 square foot boutique office building designed with an abundance of exterior glass to let in the California sunshine and a rooftop deck with a view of the Golden Gate Bridge. Although the project’s design conformed to all the local building and zoning codes, the San Francisco planning department did not react favorably to the first set of plans and specifications, and the developer was concerned the project might get seriously delayed. Local zoning and building codes regulate all the following property development issues, EXCEPT: Minimum DSCR and maximum LTV ratio Minimum parking ratios and traffic mitigation Maximum height restrictions and seismic safety Maximum FAR and allowable uses A 72,000 square foot multi-tenant retail property with an Equinox gym and a Wendy’s restaurant in Columbus, Ohio was recently sold for $7,200,000. Selling costs, including a brokerage fee, totaled five percent of the purchase price. The mortgageloan balance at the time of sale was $3,760,000. The property was purchased eight years earlier for $4,200,000, and annual depreciation deductions of $120,000 were taken each year for tax purposes. If the combined effective federal and state income tax rates on capital gains and tax depreciation recapture is 30%, what was the after-tax cash flow from the sale of the property? $2,288,000 $2,540,000 ?? Not sure but i think use financial leverage $2,252,000 $2,000,000 A single-tenant class “A” office building in Macon, Georgia had a lease for 30,000 square feet with an annual expense stop of $7.00 per square foot. If the actual expenses for the building totaled $11.00 per square foot for 2023, what would be the total expense reimbursement paid by the tenant for 2023 in connection with that lease? $0 $120,000 Reimbursement: $11 - $7 = $4 per square foot$210,000 $4 * 30,000 sq ft = $120,000 $330,000 A 108,000 square foot industrial building in Chula Vista, California that was built in 1983 was offered for sale “as is” in October 2023 at what appeared to be a bargain price of only $44 per square foot. The property had been recently vacated by its single tenant who had moved into a newer facility a few miles away. A potential buyer of the now vacant property was concerned that there may have been hazardous waste contamination at the site by the prior tenant, so she hired an environmental consulting firm to assist her in evaluating the potential environmental risk as part of her due diligence process. The due diligence process for a real estate investment: Is necessary only when the investment has a substantial amount of risk, as in the case of potential environmental contamination Identifies the investment’s future cash flow potential with a high degree of certainty Is an imperfect process to determine whether, for a particular buyer, the potential returns from the investment are sufficient given the potential risks Uncovers all the potential risks relating to the investment A real estate investor based in Corona Del Mar, California borrowed $43,200,000 from Union Bank secured by a 188,000 square foot suburban shopping center that she owned. The loan was a ten-year interest-only variable rate mortgage loan payable monthly with 30-day SOFR as the rate index. For the first two years, the loan had a teaser rate of 2%, after which the interest rate resets annually with 2% annual and 6% lifetime interest rate increase caps and a margin of 2.5%. On the first reset date, the 30-day SOFR was 3.5%. What was the monthly loan payment for the third loan year? $216,000 double check type of loan (interest only/amortization) $144,000 interest only → loan amount doesn’t change$198,000 Because of the interest rate caps, the monthly payment would not change All the following are true regarding an option contract to purchase a land site, EXCEPT: If the developer ultimately decides not to acquire the property under option, the landowner must refund all option payments previously paid by the developer If the developer ultimately decides not to acquire the property, the developer will not be obligated to pay the purchase price stated in the option contract An option contract gives the developer time to obtain a change in the land use entitlements before the developer must decide whether to acquire the property An option contract gives the developer assurance that the property will not be sold to someone else during the option period When a lender receives an annual interest rate plus a percentage of the sales, gross income, or net operating income from a property, the loan is known as a(n): Group of answer choices Participating loan Accrual loan Construction loan Convertible loan A suburban retail property in Arlington, Virginia with 60,000 square feet and 600 surface parking spaces was purchased for $6,000,000 at a cap rate of 6.0% with a 60% LTV interest-only loan at a 6% annual interest rate. If after six years the propertyappreciated by 60%, what would be the amount of the owner’s equity in the property at that time? (First Calc new price of property) 6,000,000*1.6= 9,600,000 then sub the loan balance 3,600,000 = 6,000,000 EQUITY= NEW PROPERTY PRICE- LOAN BALANCE $3,600,000 $9,600,000 $6,000,000 $2,400,000 An aging portfolio of garden apartments in and around Des Moines, Iowa was acquired by an apartment REIT from a local bank at a foreclosure sale in 2009. The apartments had been poorly maintained for years and needed significant renovations. Which of the following would NOT be one of the REIT’s primary objectives in renovating the apartment properties? Group of answer choices Increased property values Increased occupancy levelsIncreased operating expenses Increased rents A $27.0 million mortgage loan from Bank of America fully amortizing over twenty five years at a fixed annual interest rate 6.75% with equal monthly payments and a 1% prepayment penalty has been seasoned for seven years. What will be the balloon payment due on the contract maturity date if the monthly mortgage payments continue to be paid on time? $23,290,179 $27,000,000 $0 $24,512,618 Which of the following is FALSE regarding the debt service coverage ratio? Group of answer choices It is calculated as annual NOI ÷ annual Mortgage Payment It is not a concern for lenders when the LTV ratio is not very high It is an indication of the risk of the loan for the lender It indicates whether the NOI is sufficient to cover the mortgage paymentsCVS signed a 15-year triple net lease for a 333,000 square foot distribution facility in Irvine, California with a first year base rent of $2,250,000 and fixed annual base rent increases of 3% per year. What would be the expected sale price of the property if it is sold at the end of the tenth lease year based on a sale capitalization rate of 4% that is applied to the eleventh year projected NOI? YOU ARE TRYING TO FIND PP BUT FIRST NEED TO CALC NOI PP=NOI/CAP RATE NOI= 2,250,000(1.03)^10 = 3,023,811 PP=3,023,811/.04 = 75,595,296 $77,863,155 $75,595,296 $56,250,000 $73,393,492 Residential mortgage backed securities (RMBS) are likely to be more affected by falling interest rates than commercial mortgage backed securities (CMBS) because: Group of answer choices Default risk is not a significant risk affecting CMBS Commercial mortgage borrowers can typically prepay and refinance more easily than residential mortgage borrowers Residential mortgage borrowers can typically prepay and refinance more easily than commercial mortgage borrowers Prepayment risk is not a significant risk affecting RMBSThe following are all benefits that can come from renovating an investment property, EXCEPT: Group of answer choices A higher rent level, improved occupancy, and reduced operating costs The opportunity cost of spending significant time and effort on the renovation An increase in the property’s market value Achieving a high return on the cost of the renovation Real estate markets fell substantially during the Global Financial Crisis of . At that time, a real estate investment fund was considering the sale of one of its larger assets – a mixed-use project that was nearing completion but had no preleasing whatsoever. The investment fund’s team quietly looked for and found a unique institutional buyer who wanted all the property’s components – office, apartments, and retail – and that buyer offered a surprisingly high price in light of the depressed market conditions. To determine whether to accept the offer and sell the property quickly or instead to complete the project, lease it up, and sell it a few years later, the investment team put together a detailed hold/sell analysis for the property. When doing a hold/sell analysis, all the following are important factors to consider, EXCEPT: Group of answer choices IRR and equity multiple projections from holding the property longer as compared to selling the property nowRisks related to holding the property in order to achieve the projected returns Future market conditions for leasing and later selling the property Accounting depreciation for the property in the years after the projected sale A real estate appraiser will do which of the following when using the sales comparison approach to value a property? Group of answer choices Add the depreciated replacement cost of the building to the current value of the land Estimate and then capitalize the annualized net operating income of the property Compare the prices of recently sold comparable properties to the subject property, making value adjustments for the differences between the subject and the comps Subtract accrued depreciation from the current cost of comparable properties If all the individual land parcels in a new housing development are sold for $300,000 each, the developer projects total revenue from land sales will be $120 million. If the land lender requires that their $60 million land loan be completely paid off by the time that 75% of the individual land parcels have been sold, what would be the lender’s minimum release price for each parcel? Group of answer choices $200,000$150,000 $250,000 $300,000 A borrower took out a $1,450,000 30-year fully amortizing conforming adjustable rate mortgage loan with an index of the one year U.S. Treasury and a 2.5% margin from the Wells Fargo Bank to buy a condo in Park City, Utah. The loan has a teaser rate of 1.5% for the first year, after which the interest rate resets annually with 2% annual and 6% lifetime interest rate increase caps, and the lender charges a one point loan origination fee and an additional $540 in closing costs to the borrower that are deducted from the loan proceeds at closing. At the time of loan origination, the one year U.S. Treasury rate is 1.25%. What would be the monthly payment for the first loan year? Group of answer choices PAY ATTENTION TO WHAT YEAR U ARE PAYING $4,832.15 $5,259.25 $6,715.18 $5,004.24 gpt and checked A borrower took out a $1,450,000 30-year fully amortizing conforming adjustable rate mortgage loan with an index of the one year U.S. Treasury and a 2.5% margin from the Wells Fargo Bank to buy a condo in Skokie, Illinois. The loan has a teaser rate of 1.5% for the first year, after which the interest rate resets annually with 2% annual and 6% lifetime interest rate increase caps, and the lender charges a one point loan origination fee and an additional $540 in closing costs to the borrower that arededucted from the loan proceeds at closing. On the first reset date, the one year U.S. Treasury rate was 4.75%. What would be the monthly payment for the second loan year? USE ARM TO CALC NEW INTREST RATE- THEN SUBRACT THE PREVIOUS YEAR PAYMENTS FROM LOAN AMOUNT AND SUB AMOUNT OF YEARS $5,004.25 $6,511.15 $6,337.97 $6,461.99 A UCLA student saved $100,000 for the down payment on a $1,000,000 one-bedroom, two-bathroom home in Encino, California. She can qualify for either a $900,000 fully amortizing 30-year first mortgage loan at a 4.75% annual interest rate from Wells Fargo Bank, or she can qualify for a $790,000 fully amortizing 30-year first mortgage loan at a 4.25% annual interest rate with a $110,000 fully amortizing 30-year second mortgage loan at an 8.00% annual interest rate from Citibank. What is the approximate effective annual interest rate on the combined first and second mortgage loan package from Citibank? Group of answer choices 4.75% 6.15% 4.25% 8.00% During the subprime mortgage crisis that led to the Great Recession of ,Fannie Mae and Freddie Mac almost went bankrupt and were put under the conservatorship of the Federal Housing Finance Agency. There has been much debate over many years about whether Fannie Mae and Freddie Mac should be dissolved and replaced by alternative private or public enterprises to fulfill their important role in the secondary mortgage market. Fannie Mae and Freddie Mac: Group of answer choices Acquire loans that conform to their current loan underwriting guidelines from commercial banks and other mortgage lenders Provide liquidity, increase stability, and promote affordability in the mortgage market All these answers are correct Securitize loans acquired from mortgage loan originators and issue mortgage backed securities for sale to investors in the secondary mortgage market x The demand for housing will typically be increased by all the following, EXCEPT: Higher interest rates Population growth Employment growth Higher household income A UCLA student saved $100,000 for the down payment on a $1,000,000 one-bedroom, two-bathroom home in Encino, California. She can qualify for either a $900,000 fully amortizing 30-year first mortgage loan at a 4.75% annual interest rate from Wells Fargo Bank, or she can qualify for a $790,000 fully amortizing 30-year first mortgage loan at a 4.25% annual interest rate with a $110,000 fully amortizing 30-year second mortgage loan at an 8.00% annual interest rate from Citibank. Should the student prefer the single $900,000 mortgage loan from Wells Fargo Bank or should she prefer the $790,000 first mortgage loan and $110,000 second mortgage loan package from Citibank?Single loan from Wells Fargo Bank No difference Loan package from Citibank All the following are requirements to qualify as a REIT for tax purposes, EXCEPT: Group of answer choices Not more than 50% of the shares can be owned by the five largest shareholders At least 20% of the assets must be in taxable REIT subsidiaries At least 90% of taxable income must be distributed to shareholders as dividends At least 100 shareholders A historical summary of the publicly recorded documents that affect the ownership of a property is known as a(n): Group of answer choices Trust deed Mechanics lien Open escrow Abstract of title All the following are major participants in the secondary mortgage market, EXCEPT: Group of answer choices Fannie Mae Freddie MacEllie Mae Ginnie Mae Mortgage backed securities are primarily subject to which risks: Inversion risk and deflation risk Retention risk and inflation risk Default risk and prepayment risk Subordination risk and acceleration risk A 71% leased 71,000 square foot office building in San Diego was acquired in February 2017 by a California LLC for $39 million. The property’s building/land ratio was determined to be 90/10 at the time of acquisition by the LLC’s accountant. The property was sold in February 2023 for $80 million after leasing the building to 92% occupancy. Tax deductible selling costs included a brokerage fee that was 4% of the sale price plus legal fees and other closing costs of $200,000. What was the capital gain on the sale? Group of answer choices $43,000,000 $37,600,000 $41,000,000 $46,400,000 A fully leased three-story suburban office building near Disneyworld had a total of 60,000 rentable square feet. Each of the three floors had an identical layout with two public bathrooms, an elevator lobby, and a public hallway that yielded a load factor per floor of 1.20. The lease form used for the building was written so that rent was paid by the tenants per usable square foot of rented floor space. If the total annualrental income for the building was $1.8 million, what was the monthly rent per usable square foot? $3.60 $2.40 $2.00 $3.00 Usable SF= Rentable SF/Load Factor so.. 60,000/1.2= 50,000 usable SF 1,800,000/ 50,000= $36 PSF Annually 36/12= $3 Monthly In the United States, a ____________ is NOT a separate legal entity, rather it is an agreement between at least two parties to pursue a business or investment objective. Group of answer choices Joint venture Limited partnership Limited liability company Corporation Due to a significant shortage of affordable rental housing in Los Angeles, a real estate developer knew he wanted to build several large apartment buildings to help the public while making a significant profit for himself and his investors. He identified an interesting development site near the new Expo line, but it was zoned for industrial use under the 2019 update of the LA County Zoning Code. His land use attorney suggested that he seek a variance from the Los Angeles City Council to allow the development of high-density residential apartments on the site. If he pursues a variance: Group of answer choicesAll these answers are correct A higher risk adjusted return should be expected given the uncertainty of the process It might take years to receive approval given the many levels of the process Political, environmental, engineering, land use, taxes and other economic and legal considerations of the development process must be carefully managed A 75% leased apartment building that you recently acquired in Las Vegas, Nevada had an estimated annual NOI of $180,000. After you complete some needed renovations and improvements, you believe you can increase the occupancy to 95% while achieving higher rents and reduced operating costs, and you believe the renovated building will sell at a lower cap rate. If you can increase the NOI by 50% and reduce the sale cap rate by 25%, you will increase the sale price of the property by: 50% 75% 100% 25% Shareholders expect to receive all of the following from publicly traded REITs, EXCEPT:Professional management Liquidity Low dividend yield - Diversification Many of the policy measures taken to reduce the health impact and economic consequences of the COVID-19 pandemic, like social distancing and “safer at home,” adversely affected the value of retail properties for all the following reasons, EXCEPT: Group of answer choices The pandemic accelerated the change in consumer behavior to more online spending activity causing a reduction of tenant demand for physical retail space Some retail landlords were unable to make their monthly mortgage payments when tenants stopped paying their rent or went bankrupt Central bank intervention by the Federal Reserve to support the economy during the pandemic reduced interest rates to historically low levels Many retail and restaurant tenants were unable to make their monthly rent payments due to reduced customer levels which reduced the NOI of those properties A force majeure clause in a lease might allow a tenant to temporarily avoid its lease obligations if certain extraordinary events occur that are beyond the tenant’s control and that prevent the tenant from utilizing the leased premises. Under what circumstances might the COVID-19 pandemic have allowed a tenant to avoid paying rent?A court of competent jurisdiction issued an order declaring that the COVID-19 pandemic was a supervening event allowing for a delay in rent payments by tenants All these answers are correct A federal, state, or local governmental authority issued a directive preventing landlords from evicting tenants for non-payment of rent during the time specified The lease had a force majeure clause that specifically referenced the possibility of a health crisis like the COVID-19 pandemic and the tenant was unable to use the premises as a direct consequence of that referenced force majeure event A 99-unit apartment building that was acquired for $2.7 million generates a 7.5% before tax annual return on equity with a $1.5 million 10-year interest-only first mortgage loan at a 5.0% annual interest rate. What is the debt service coverage ratio on the loan? DSCR= NOI/Debt Service 2.2 NOI=7.5%1,400,000=105,000 Debt Serivce= 5%*3,000,000= 150,000 2.7 90,000/75,000 = 1.2 1.83 0.54All the following are types of mortgage backed securities, EXCEPT: Group of answer choices Interest-only and principal-only tranches Floaters and inverse floaters BBB, BB, and B tranches Reverse annuity and double helix tranches By 2022, about 95% of the total market value of all publicly traded REITs was in equity REITs and about 5% in mortgage REITs, and the total market capitalization was almost $1.3 trillion. The primary difference between equity REITs and mortgage REITs is: Group of answer choices Equity REITs primarily own real property investments whereas mortgage REITs primarily own mortgage loans on properties and mortgage-backed securities Equity REITs can be public whereas mortgage REITs must be private Equity REITs typically pay a higher dividend yield than mortgage REITs Equity REITs must be unleveraged whereas mortgage REITs can be leveragedAn apartment building development site in Los Gatos, California was a 240’ by 360’ rectangular lot. If the local zoning codes required that the building’s footprint be setback fifteen feet from each side of the property line, and if the FAR for that site was 4.0 per square foot of the building’s footprint, what would be the maximum building square footage that could be built? Group of answer choices 310,500 86,400 277, by 360-30= 69,300*4= 277,200 345,600 A 58-unit apartment building in Newport Beach, California was acquired for $36 million with a $26 million fixed rate constant payment first mortgage loan at a 4.0% annual interest rate that was fully amortizing over 30 years but due in 10 years. The apartment building had a first year before tax ROE of 8%, and a first year negative taxable income, after depreciation, of -$250,000. If the building’s owner had a combined federal and state marginal income tax rate of 55%, what was the approximate first year after tax ROE?Tax Savings=−250,000×0.55=+137,500 After-tax cash flow=10,000,000(.8)=800,000+137,500=937,500/10,000,000= 9.4 8.0% 5.5% 3.7% 9.4% Chris and Maurice formed a new limited liability company and invested $1,000,000 of equity in an apartment building in Santa Ana, California with Chris investing $950,000 and Maurice $50,000. Their LLC operating agreement provided that: (A) the annual cash distributions would be split 90% to Chris and 10% to Maurice, and (B) the net cash proceeds from the sale of the property would be distributed first to each of them until they have received an amount equal to their original cash investments less any cash distributions they had previously received, then the balance of the net sale proceeds would be split 60%/40% between Chris and Maurice. How much would Maurice receive upon the sale of the property if the sale generates net cash proceeds of $3,250,000 after paying off the mortgage loan, the brokerage commission, and other closing costs, and if the LLC had previously distributed $400,000 collectively to Chris and Maurice? Group of answer choices $1,060,000 $1,070,000 $1,110,000 $2,180,000 Original Investment(50,000)- Paid back 40,000(10% of 400,000) So hes owed 10,000 + 40% of 2,650,000= 1,060,000+10,000= 1,070,000 Chirs is owed 590,000 3,250,000-600,000(this is going to them so its sub) =2,650,000- Split this 60/40MIDTERM NOTES: 09/26 Chapter 1 Basic Legal Concepts: - Real Estate: Land and all things “permanently” attached thereto. - Real Property: Ownership Rights associated with Real Estate. - Personal Property: Movable things and Intangibles. - Fixtures: Are Personal Property until they are Attached to a Building, then they become a part of the Real Property. - Statute of Frauds: Requires that almost every agreement relating to Real Property be in Writing in order to be Enforceable in a court of law (from England 1677). - Property Rights and Estates in Real Estate: Ownership, Possessory and Use rights. The most complete form of ownership is a Fee Simple Absolute (or “Fee Simple” or “Fee”). A Life Estate lasts only for the life of the named person. A Future Estate can be a Remainder interest or a Reversion interest. - Easement: A Non-ownership, Non-possessory right to Use or access Land owned or leased by someone else. They are very limited in nature. - Leasehold Estate / Lease: Real Property can be Leased by the Landlord / Lessor to the Tenant / Lessee for a particular purpose for a particular period of time. Leases over One Year must be in Writing to be Enforceable under the Statute of Frauds. - Title: Determines Ownership of the Real Property and is evidenced by a Deed. - Deed: A Document that grants or transfers Title to Real Property from a Grantor to a Grantee. The strongest is a General Warranty Deed, the weakest is a Quitclaim Deed. Certain Deed Restrictions are not enforceable under non-discrimination laws. - Security Interests: A Borrower signs a Mortgage (or Deed of Trust) as the Mortgagor (or Trustor) in favor of a Lender who is the Mortgagee (or Beneficiary) pledging Real Estate owned by the Borrower to secure the repayment of aLoan. - Recording Act: All states have statutory rules to resolve the Priority of Claims relating to Real Property and to give the public Constructive Notice of recorded items. Abstract of Title: Historical summary of the Publicly Recorded Documents that affect Title to Real Property. - Title Insurance: Method of assuring Title to Real Property used in California and all other states. Two kinds: Owner’s Policy and Lender’s Policy (can be CLTA or ALTA). - Mechanic’s Lien: May be Recorded by Unpaid Contractors, workers and materials providers to secure pa