RE 3381 Final Exam Questions and Answers Fully Solved Latest Version 2025-2026
Pro Forma Cash Flow Model - AnswersA financial model that projects future cash flows based on certain
assumptions.
Potential Gross Income/Revenue (PGI) - AnswersThe total rental income a property could generate if
fully leased with no vacancies or credit losses.
Effective Gross Income/Revenue (EGI) - AnswersThe actual income collected after accounting for
vacancy, credit losses, and additional income sources.
Vacancy Modeling - AnswersThe process of estimating vacancy rates considering market trends, lease
expirations, and historical vacancy rates.
Reimbursable Operating Expenses - AnswersExpenses that are paid back by tenants based on their pro
rata share, such as property taxes and insurance.
Non-Reimbursable Operating Expenses - AnswersExpenses covered by the property owner that are not
passed back to tenants, such as management fees.
Controllable Operating Expenses - AnswersExpenses that the property manager can influence, like
repairs and maintenance.
Non-Controllable Operating Expenses - AnswersExpenses largely determined by external factors, such as
property taxes and utilities.
Maintenance Expenses - AnswersRecurring costs required to keep the property operational, such as
cleaning and minor repairs.
Capital Expenditures - AnswersLarge, infrequent expenses aimed at improving or extending the life of
the property, like roof replacements.
Tenant Improvement Allowances (TI's) - AnswersIncentives offered by landlords to tenants for
renovations or modifications to the leased space.
Leasing Commissions - AnswersFees calculated as a percentage of the total lease value, typically paid
upfront upon lease execution.
Unlevered Pro Forma - AnswersRepresents the property's cash flows as if there is no debt, focusing
purely on property performance.
Levered Pro Forma - AnswersReflects the impact of debt on cash flows, deducting debt service from the
NOI to arrive at cash flow available to equity.
Difference between PGI and EGI - AnswersEGI is the income collected after accounting for vacancies and
losses, while PGI is the maximum possible revenue.
, Current Vacancy Modeling - AnswersThe practice of estimating vacancy based on the current situation,
which may not reflect stabilized rates.
Optimistic Projections by Sellers - AnswersSellers often present projections that underestimate
vacancies and maintenance to enhance perceived value.
Conservative Projections by Buyers - AnswersBuyers' projections focus on realistic income expectations
and cautious expense estimates to assess risk.
Additional Income Sources - AnswersIncome from sources such as parking fees, late fees, and storage
rentals that contribute to EGI.
Debt Service - AnswersThe cash required to cover the repayment of interest and principal on a debt
obligation.
Unlevered cash flow - AnswersRepresents the cash flow of a property, assuming no debt is involved -
purely the operating performance of the asset.
Unlevered Cash Flow Formula - AnswersUnlevered Cash Flow = NOI - CapEx
Levered cash flow - AnswersTakes into account debt obligations - this is the cash flow remaining after
debt service is paid.
Levered Cash Flow Formula - AnswersLevered cash flow = Unlevered Cash Flow - Debt Service
Single-year returns - AnswersExamining single-year returns allows for understanding the immediate
performance of the asset and its alignment with market benchmarks (like NOI return, cap rate).
Total return basis - AnswersMeasures the long-term profitability, factoring in value changes, debt
payments, and eventual sale, giving a full view of investment performance over its life cycle (IRR, NPV,
Equity Multiple).
Market risk - AnswersIncludes macroeconomic factors like economic downturns, changes in supply and
demand, and tenant stability.
Financial risk - AnswersAssociated with the capital structure of the investment, like the amount of
leverage used, interest rate changes, and the cost structure of debt and equity.
Current NOI return - AnswersCurrent NOI return = Annual NOI / All-In Acquisition Cost.
Return on cost (ROC) - AnswersReturn on cost (ROC) = Stabilized Annual NOI / All-In Development Cost.
Current Return on Asset - AnswersCurrent Return on Asset = Property Cash Flow After CapEx / Total Cost
Basis.
Current return on equity - AnswersCurrent return on equity = Cash Flow after Debt Service / Total Equity
Invested.
Pro Forma Cash Flow Model - AnswersA financial model that projects future cash flows based on certain
assumptions.
Potential Gross Income/Revenue (PGI) - AnswersThe total rental income a property could generate if
fully leased with no vacancies or credit losses.
Effective Gross Income/Revenue (EGI) - AnswersThe actual income collected after accounting for
vacancy, credit losses, and additional income sources.
Vacancy Modeling - AnswersThe process of estimating vacancy rates considering market trends, lease
expirations, and historical vacancy rates.
Reimbursable Operating Expenses - AnswersExpenses that are paid back by tenants based on their pro
rata share, such as property taxes and insurance.
Non-Reimbursable Operating Expenses - AnswersExpenses covered by the property owner that are not
passed back to tenants, such as management fees.
Controllable Operating Expenses - AnswersExpenses that the property manager can influence, like
repairs and maintenance.
Non-Controllable Operating Expenses - AnswersExpenses largely determined by external factors, such as
property taxes and utilities.
Maintenance Expenses - AnswersRecurring costs required to keep the property operational, such as
cleaning and minor repairs.
Capital Expenditures - AnswersLarge, infrequent expenses aimed at improving or extending the life of
the property, like roof replacements.
Tenant Improvement Allowances (TI's) - AnswersIncentives offered by landlords to tenants for
renovations or modifications to the leased space.
Leasing Commissions - AnswersFees calculated as a percentage of the total lease value, typically paid
upfront upon lease execution.
Unlevered Pro Forma - AnswersRepresents the property's cash flows as if there is no debt, focusing
purely on property performance.
Levered Pro Forma - AnswersReflects the impact of debt on cash flows, deducting debt service from the
NOI to arrive at cash flow available to equity.
Difference between PGI and EGI - AnswersEGI is the income collected after accounting for vacancies and
losses, while PGI is the maximum possible revenue.
, Current Vacancy Modeling - AnswersThe practice of estimating vacancy based on the current situation,
which may not reflect stabilized rates.
Optimistic Projections by Sellers - AnswersSellers often present projections that underestimate
vacancies and maintenance to enhance perceived value.
Conservative Projections by Buyers - AnswersBuyers' projections focus on realistic income expectations
and cautious expense estimates to assess risk.
Additional Income Sources - AnswersIncome from sources such as parking fees, late fees, and storage
rentals that contribute to EGI.
Debt Service - AnswersThe cash required to cover the repayment of interest and principal on a debt
obligation.
Unlevered cash flow - AnswersRepresents the cash flow of a property, assuming no debt is involved -
purely the operating performance of the asset.
Unlevered Cash Flow Formula - AnswersUnlevered Cash Flow = NOI - CapEx
Levered cash flow - AnswersTakes into account debt obligations - this is the cash flow remaining after
debt service is paid.
Levered Cash Flow Formula - AnswersLevered cash flow = Unlevered Cash Flow - Debt Service
Single-year returns - AnswersExamining single-year returns allows for understanding the immediate
performance of the asset and its alignment with market benchmarks (like NOI return, cap rate).
Total return basis - AnswersMeasures the long-term profitability, factoring in value changes, debt
payments, and eventual sale, giving a full view of investment performance over its life cycle (IRR, NPV,
Equity Multiple).
Market risk - AnswersIncludes macroeconomic factors like economic downturns, changes in supply and
demand, and tenant stability.
Financial risk - AnswersAssociated with the capital structure of the investment, like the amount of
leverage used, interest rate changes, and the cost structure of debt and equity.
Current NOI return - AnswersCurrent NOI return = Annual NOI / All-In Acquisition Cost.
Return on cost (ROC) - AnswersReturn on cost (ROC) = Stabilized Annual NOI / All-In Development Cost.
Current Return on Asset - AnswersCurrent Return on Asset = Property Cash Flow After CapEx / Total Cost
Basis.
Current return on equity - AnswersCurrent return on equity = Cash Flow after Debt Service / Total Equity
Invested.
