UGA REAL 4000 EXAM 4 QUESTIONS AND ANSWERS
(Chapters 17, 19, 23, NCPQs included)
What is EQUITY and some examples? - --OWNERSHIP
ex: sponsor equity, common equity
- What is DEBT and some examples? - --LOAN TO OWNERSHIP
ex: junior debt, senior debt
- Due to the large size of typical RE investments, investors almost always.....
- -pool their equity capital
- What are some ways to pool equity? - --General partnership
-Limited partnership
-C corporation
-S corporation
-Limited liability company (LLC)
-Tenancy-in-common
-REIT
- What are the advantages of pooling equity? - --allows investors to
purchase an interest in larger properties
-diversification of portfolio
-economies of sale in acquisitions, management and disposition
-access to cheaper debt capital
-expertise of management team hired by syndicator/ organizer
- What are disadvantages of pooling equity - --often must relinquish
management control to active manager
-must compensate sponsor with fees, salary, and/or disproportionate share
of equity ownership
- What drives Choice of Ownership Form? - -1. Federal income tax
issues/rules
2. Desire of investors for limited liability
3. Management control issues
4. Ability to access debt & additional equity capital
5. Ability to share risk with other investors
6. Ability of investors to dispose of their interests
- Direct Investment - --gives the individual & institutional investors
complete control
-but...investor must supply the expertise
-no liquidity
, -as size of investor's portfolio increase, its easier to diversify risk, create
liquidity across assets, retain in-house experts or hire consultants
- What is the estimated market value of investable commercial real estate? -
-12.6 trillion
- General Partnership - --treated as conduits for tax purposes (don't face
"double taxation")
-easily created
-partners make all operating decisions
- all partners have unlimited liability (which makes it uncommon)
- Limited Partnership (LP) - --must have at least one general and one limited
partner
-treated as conduits for tax purposes
-limited partners can cap their liability to their investment amount, while
general partners face unlimited liability
-rely on the general partner to make all decisions
- C Corporation - --most common type of corporation
-is a legal business entity that offers limited liability to all of its owners, who
are called stockholders
-pays through dividends
-provides limited liability to shareholders
-may get double taxed
- S Corporation - --pay no income taxes, taxable income is passed down to
stockholders who then become liable for taxes
-cannot have more than 100 shareholders
-uncommon
- Limited Liability Company (LLC) - --combines corporate characteristics of
limited liability for the owners and with the tax characteristics of a
partnership
-flexible on number of owners
-special allocations are allowed
-permits all owners to have limited liability
-cheaper and easier than a LP
-small local investments with high income investors
- What are the dominant ownership structures in the US for private real
estate investment and why? - --LLCs
-LPs
-single taxation, limited liability for most, and allowance of special allocations
of cash flows
(Chapters 17, 19, 23, NCPQs included)
What is EQUITY and some examples? - --OWNERSHIP
ex: sponsor equity, common equity
- What is DEBT and some examples? - --LOAN TO OWNERSHIP
ex: junior debt, senior debt
- Due to the large size of typical RE investments, investors almost always.....
- -pool their equity capital
- What are some ways to pool equity? - --General partnership
-Limited partnership
-C corporation
-S corporation
-Limited liability company (LLC)
-Tenancy-in-common
-REIT
- What are the advantages of pooling equity? - --allows investors to
purchase an interest in larger properties
-diversification of portfolio
-economies of sale in acquisitions, management and disposition
-access to cheaper debt capital
-expertise of management team hired by syndicator/ organizer
- What are disadvantages of pooling equity - --often must relinquish
management control to active manager
-must compensate sponsor with fees, salary, and/or disproportionate share
of equity ownership
- What drives Choice of Ownership Form? - -1. Federal income tax
issues/rules
2. Desire of investors for limited liability
3. Management control issues
4. Ability to access debt & additional equity capital
5. Ability to share risk with other investors
6. Ability of investors to dispose of their interests
- Direct Investment - --gives the individual & institutional investors
complete control
-but...investor must supply the expertise
-no liquidity
, -as size of investor's portfolio increase, its easier to diversify risk, create
liquidity across assets, retain in-house experts or hire consultants
- What is the estimated market value of investable commercial real estate? -
-12.6 trillion
- General Partnership - --treated as conduits for tax purposes (don't face
"double taxation")
-easily created
-partners make all operating decisions
- all partners have unlimited liability (which makes it uncommon)
- Limited Partnership (LP) - --must have at least one general and one limited
partner
-treated as conduits for tax purposes
-limited partners can cap their liability to their investment amount, while
general partners face unlimited liability
-rely on the general partner to make all decisions
- C Corporation - --most common type of corporation
-is a legal business entity that offers limited liability to all of its owners, who
are called stockholders
-pays through dividends
-provides limited liability to shareholders
-may get double taxed
- S Corporation - --pay no income taxes, taxable income is passed down to
stockholders who then become liable for taxes
-cannot have more than 100 shareholders
-uncommon
- Limited Liability Company (LLC) - --combines corporate characteristics of
limited liability for the owners and with the tax characteristics of a
partnership
-flexible on number of owners
-special allocations are allowed
-permits all owners to have limited liability
-cheaper and easier than a LP
-small local investments with high income investors
- What are the dominant ownership structures in the US for private real
estate investment and why? - --LLCs
-LPs
-single taxation, limited liability for most, and allowance of special allocations
of cash flows
