Real Estate Study Guide:
Prelim 1 answers:
1. For which of the following reasons would a business prefer to own space rather than
lease it?
a. The business demands specialized or unique facilities
2. The supply of space is:
a. Relatively inelastic in the short run, and highly elastic in the long run
3. A 1,500 square foot office space is leased at $12.00 square foot. The space is vacant one
month out of the Office expenses are $6.50 per square foot and an expense stop is set at
$6.00 per square foot. What is the annual net operating income?
a. $7,500
4. You are an investment analyst researching acquisition opportunities in Manhattan. Which
major indicator would factor most into your recommendation to find the property with
the strongest demand side activity?
a. Absorption
5. A building owner charges net rent of $20 in the first year, $21 in the second year, and $22
in the third year, but is providing six months of free rent in the first year as a concession.
Using a 10 percent discount rate, what is the effective rent over the three years?
a. $17.28
6. The sales comparison approach to appraisal is preferred because it is the only objective
appraisal approach.
a. False
7. Which of the following is TRUE concerning the capitalization rate?
a. It expresses relationships between income and property value at a specific point in
time.
8. Which of the following is TRUE for a net lease?
a. All expenses are paid by the tenant.
9. Expenses for a 1,000 square foot office space are $6.00 per square foot. The lease
specifies an expense stop of $5.40. What is the total expense paid by the landlord?
a. $5400
10. Consider a building with a very long economic life. Assume at the end of year 6, NOI
will be $80,000 and is expected to grow at a rate of 2 percent per year. Your company's
required rate of return is 12 percent. As part of your analysis, you must calculate the
reversion value (Sales Price) at the end of year 5, which would be:
a. 800,000
Quiz 1:
1. You are a real estate developer in the Ithaca market, considering a new office
development. You observe that office properties currently trade at a 6% cap rate. Your
cost of developing an office property is approximately $300 per square foot. Rents are
, currently $20 per square foot. By what percentage can rents fall before it becomes
unprofitable for you to proceed with the planned development project?
a. 10%
2. What does net absorption mean in the context of a real estate market analysis?
a. It measures the number of new leases signed during a time period, net of moves
within the same market.
3. Which of the following is NOT part of the data on new supply that you need in a real
estate market analysis?
a. The amount of space that has been completed two years ago.
Quiz 2:
1. Choose one from the options below. A basic lease resembles a:
a. Debt contract: A series of predetermined payment amounts
2. Choose one from the options below. Which is NOT a typical lease structure we discussed
in class:
a. Variable rent
Quiz 3:
1. Which of the following is not a reason why lenders like to lend against real estate
collateral?
a. Upside potential from uplift in property value
2. The primary objective of the underwriting process is to evaluate:
a. Default risk
3. The threshold values for underwriting commercial mortgages are typically as follows:
a. Maximum 75% LTV – DSCR of 1.2 or more – BER less than 100% minus
(market vacancy + 5% buffer), EBTCF>0
Prelim 2 Answers:
1. A borrower takes out a 30-year fixed-rate, fixed-payment mortgage loan for $250,000
with an annual interest rate of 5% and monthly payments. What portion of the first
month's payment would be applied to interest?
a. $1,042
2. The minimum lenders typically require for a DCR is:
a. 1.2
3. With a negative amortizing loan, the borrower will end up with a loan balance at the end
of the loan that is greater that the original loan balance.
a. True
4. Which of the following closing costs DO NOT increase the lender's effective loan yield?
a. Title insurance charges
5. A REIT has an NOI of $15 a share and currently pays a dividend of $10 a share. The
dividend is projected to increase by 4% by next year and continue to increase by 4% per
year thereafter. Assuming that the private market property cap rate is 9.75% and the
required rate of return is 10.5%, what value would the Dividend Discount Model
provide?
Prelim 1 answers:
1. For which of the following reasons would a business prefer to own space rather than
lease it?
a. The business demands specialized or unique facilities
2. The supply of space is:
a. Relatively inelastic in the short run, and highly elastic in the long run
3. A 1,500 square foot office space is leased at $12.00 square foot. The space is vacant one
month out of the Office expenses are $6.50 per square foot and an expense stop is set at
$6.00 per square foot. What is the annual net operating income?
a. $7,500
4. You are an investment analyst researching acquisition opportunities in Manhattan. Which
major indicator would factor most into your recommendation to find the property with
the strongest demand side activity?
a. Absorption
5. A building owner charges net rent of $20 in the first year, $21 in the second year, and $22
in the third year, but is providing six months of free rent in the first year as a concession.
Using a 10 percent discount rate, what is the effective rent over the three years?
a. $17.28
6. The sales comparison approach to appraisal is preferred because it is the only objective
appraisal approach.
a. False
7. Which of the following is TRUE concerning the capitalization rate?
a. It expresses relationships between income and property value at a specific point in
time.
8. Which of the following is TRUE for a net lease?
a. All expenses are paid by the tenant.
9. Expenses for a 1,000 square foot office space are $6.00 per square foot. The lease
specifies an expense stop of $5.40. What is the total expense paid by the landlord?
a. $5400
10. Consider a building with a very long economic life. Assume at the end of year 6, NOI
will be $80,000 and is expected to grow at a rate of 2 percent per year. Your company's
required rate of return is 12 percent. As part of your analysis, you must calculate the
reversion value (Sales Price) at the end of year 5, which would be:
a. 800,000
Quiz 1:
1. You are a real estate developer in the Ithaca market, considering a new office
development. You observe that office properties currently trade at a 6% cap rate. Your
cost of developing an office property is approximately $300 per square foot. Rents are
, currently $20 per square foot. By what percentage can rents fall before it becomes
unprofitable for you to proceed with the planned development project?
a. 10%
2. What does net absorption mean in the context of a real estate market analysis?
a. It measures the number of new leases signed during a time period, net of moves
within the same market.
3. Which of the following is NOT part of the data on new supply that you need in a real
estate market analysis?
a. The amount of space that has been completed two years ago.
Quiz 2:
1. Choose one from the options below. A basic lease resembles a:
a. Debt contract: A series of predetermined payment amounts
2. Choose one from the options below. Which is NOT a typical lease structure we discussed
in class:
a. Variable rent
Quiz 3:
1. Which of the following is not a reason why lenders like to lend against real estate
collateral?
a. Upside potential from uplift in property value
2. The primary objective of the underwriting process is to evaluate:
a. Default risk
3. The threshold values for underwriting commercial mortgages are typically as follows:
a. Maximum 75% LTV – DSCR of 1.2 or more – BER less than 100% minus
(market vacancy + 5% buffer), EBTCF>0
Prelim 2 Answers:
1. A borrower takes out a 30-year fixed-rate, fixed-payment mortgage loan for $250,000
with an annual interest rate of 5% and monthly payments. What portion of the first
month's payment would be applied to interest?
a. $1,042
2. The minimum lenders typically require for a DCR is:
a. 1.2
3. With a negative amortizing loan, the borrower will end up with a loan balance at the end
of the loan that is greater that the original loan balance.
a. True
4. Which of the following closing costs DO NOT increase the lender's effective loan yield?
a. Title insurance charges
5. A REIT has an NOI of $15 a share and currently pays a dividend of $10 a share. The
dividend is projected to increase by 4% by next year and continue to increase by 4% per
year thereafter. Assuming that the private market property cap rate is 9.75% and the
required rate of return is 10.5%, what value would the Dividend Discount Model
provide?
