REAL 4000 EXAM 4 - ncpq &lcpq Exam
Questions and Answers
There are a set of restrictive conditions that REITs must satisfy on an
ongoing basis in order to maintain their special tax status. All of the following
statements regarding the main restrictions are false except - -no five
investors can own more than 10 percent of a REIT's shares.
at least 75 percent of the value of a REIT's assets must consist of real estate
assets.
a REIT must distribute at least 75% of its taxable income to shareholders in
the form of dividends.
at least 50 investors must own a REIT's shares.
B
- At the end of 2015, commercial banks and other financial institutions
collectively owned $15 billion in commercial real estate equity. The vast
majority of these holding are the result of indirect investment through real
estate securities. - -false
Sources of CRE Debt
75% of outstanding commercial mortgage debt is privately held
Commercial banks -> holds most of this debt
Construction loan market is dominated by nearby banks (including
commercial banks and thrifts)
- The limited partnership ownership form requires cash flows to be allocated
to each shareholder in proportion to his or her ownership of the entity,
thereby preventing special allocations to multiple classes of investors. - -
false
- In contrast to public markets, private markets are characterized by
individually negotiated transactions that take place without the aid of a
centralized market. Therefore, private markets will generally have - -high
transaction costs and low liquidity.
- FFO is the financial metric that measures the value of a REIT by taking the
reported value of all the underlying properties it owns and deducting all
liabilities such as mortgage payments. - -false
FFO is a supplemental measure of a REITs current operating performance
- based on FFO equation
- A fixture is an object that formerly was personal property but has become
real property. Of the four rules for determining whether an object has
, become a fixture, character of the article and manner of adaptation is the
most dominant rule (i.e., if there is a conflict, the rule that prevails). - -false
- the intention of the parties
- The most common forms of indirect ownership in commercial real estate
that allow for "pass-through" returns are C-Corporations and Tenants in
Common. - -false
- LLC & S corps
- Investment value is based on the expectations of a typical, or average,
investor. - -false
- holding period?
- Net present value (NPV) is interpreted using the following decision rule:
The investor will NOT purchase the property as long as the NPV is - -<0
- positive NPV means you should buy the property
- Assuming the going-in IRR is greater than the effective borrowing cost, if
an investor increases his leverage, say from 75% to 80% LTV, we would
expect NPV to increase, while going-in would IRR decrease. - -false
- Increased leverage will increase going-in IRR when unlevered IRR exceeds
effective borrowing costs
- Given the following information, calculate the before-tax equity reversion
(BTER): NOI: $89,100; annual debt service: $58,444; net sale proceeds:
$974,700; remaining mortgage balance: $631,026.
Enter a whole-number absolute value (positive number, no decimals), and no
dollar sign. - -343674
- Given the following information, calculate the NPV for this property: initial
cash outflow: $200,000; discount rate: 15%; CF for year 1: $25,876; CF for
year 2: $23,998; CF for year 3: $23,013; CF for year 4: $22,105; CF for year
5: $144,670
IT MATTERS whether the number is positive or negative, so include a minus
sign "-" in front of the number if negative. Please input a number including
pennies (two decimals), but no dollar sign.
Answer: - --59657
- A broker hired by a prospective tenant offers a landlord (owner) the
following lease terms for two floors of 2,250 rentable square feet of office
space. The broker's contract with the tenant requires a 4% commission be
paid to them by a landlord whom they rent space from. How much total
commission would the landlord owe the broker if the tenant signs a lease
and pays their first month of rent with these terms.
Term: 10 Years
Rent: $25/sqft (the way office rent is typically quoted) - -45000
Questions and Answers
There are a set of restrictive conditions that REITs must satisfy on an
ongoing basis in order to maintain their special tax status. All of the following
statements regarding the main restrictions are false except - -no five
investors can own more than 10 percent of a REIT's shares.
at least 75 percent of the value of a REIT's assets must consist of real estate
assets.
a REIT must distribute at least 75% of its taxable income to shareholders in
the form of dividends.
at least 50 investors must own a REIT's shares.
B
- At the end of 2015, commercial banks and other financial institutions
collectively owned $15 billion in commercial real estate equity. The vast
majority of these holding are the result of indirect investment through real
estate securities. - -false
Sources of CRE Debt
75% of outstanding commercial mortgage debt is privately held
Commercial banks -> holds most of this debt
Construction loan market is dominated by nearby banks (including
commercial banks and thrifts)
- The limited partnership ownership form requires cash flows to be allocated
to each shareholder in proportion to his or her ownership of the entity,
thereby preventing special allocations to multiple classes of investors. - -
false
- In contrast to public markets, private markets are characterized by
individually negotiated transactions that take place without the aid of a
centralized market. Therefore, private markets will generally have - -high
transaction costs and low liquidity.
- FFO is the financial metric that measures the value of a REIT by taking the
reported value of all the underlying properties it owns and deducting all
liabilities such as mortgage payments. - -false
FFO is a supplemental measure of a REITs current operating performance
- based on FFO equation
- A fixture is an object that formerly was personal property but has become
real property. Of the four rules for determining whether an object has
, become a fixture, character of the article and manner of adaptation is the
most dominant rule (i.e., if there is a conflict, the rule that prevails). - -false
- the intention of the parties
- The most common forms of indirect ownership in commercial real estate
that allow for "pass-through" returns are C-Corporations and Tenants in
Common. - -false
- LLC & S corps
- Investment value is based on the expectations of a typical, or average,
investor. - -false
- holding period?
- Net present value (NPV) is interpreted using the following decision rule:
The investor will NOT purchase the property as long as the NPV is - -<0
- positive NPV means you should buy the property
- Assuming the going-in IRR is greater than the effective borrowing cost, if
an investor increases his leverage, say from 75% to 80% LTV, we would
expect NPV to increase, while going-in would IRR decrease. - -false
- Increased leverage will increase going-in IRR when unlevered IRR exceeds
effective borrowing costs
- Given the following information, calculate the before-tax equity reversion
(BTER): NOI: $89,100; annual debt service: $58,444; net sale proceeds:
$974,700; remaining mortgage balance: $631,026.
Enter a whole-number absolute value (positive number, no decimals), and no
dollar sign. - -343674
- Given the following information, calculate the NPV for this property: initial
cash outflow: $200,000; discount rate: 15%; CF for year 1: $25,876; CF for
year 2: $23,998; CF for year 3: $23,013; CF for year 4: $22,105; CF for year
5: $144,670
IT MATTERS whether the number is positive or negative, so include a minus
sign "-" in front of the number if negative. Please input a number including
pennies (two decimals), but no dollar sign.
Answer: - --59657
- A broker hired by a prospective tenant offers a landlord (owner) the
following lease terms for two floors of 2,250 rentable square feet of office
space. The broker's contract with the tenant requires a 4% commission be
paid to them by a landlord whom they rent space from. How much total
commission would the landlord owe the broker if the tenant signs a lease
and pays their first month of rent with these terms.
Term: 10 Years
Rent: $25/sqft (the way office rent is typically quoted) - -45000
