CCIM 101 EXAMS SCRIPT QUESTIONS AND SOLUTIONS
GRADED A+
✔✔Prior to 1960 major institutions invested only in highly liquid bonds. Stocks were
ignored due to a lack of information and transparency. Now - ✔✔Investors are giving
significant attention to another major asset class commercial real estate. Commercial
real estate is a significant portion of the capital market and now considered to be an
asset class like stocks and bonds
✔✔When developing a risk and and return profile for a property you should keep what
important basic concept in mind? - ✔✔Commercial real estate has investment behavior
attributes similar to both the bond market and the stock market. Contract leases behave
like bonds, and the upside created in commercial real estate by re-tenanting and
repositioning simulates the investment characteristics of the stock market. It is often
thought that I leveraged, institutional commercial real estate should provide returns
somewhere in between bonds and stocks.
✔✔How does real estate help to reduce the overall risk of a portfolio - ✔✔The risk and
return of real estate may fall between that of stocks and bonds real estate tends to be
impacted by different economic events that stocks and bonds. Real estate tends to be
better in an inflationary environment. The returns for real estate are not highly correlated
with that of stocks and bonds including real estate in the portfolio tends to smooth out
the performance of the portfolio.
✔✔The bond market - ✔✔Serves as a financing mechanism for corporations. The
corporation issues the bonds, which have set parameters in terms of the repayment
schedule, coupon rate, term, and maturity.
✔✔Simple way to look at bond market - ✔✔As the investor serving as the lender, and
the entity (I.e., the corporation) issuing the bond serves as the borrower. Bonds are also
known as fixed-income securities because the investor knows how much they get and
when the bond will mature or be repaid.
✔✔Government issued bonds. - ✔✔Are known as treasury bonds. The structure and
pricing of government bonds are identical to that of corporate bonds however
government bonds typically are referred to as risk-fee-bonds as they essentially have no
risk of default.
✔✔Stock market - ✔✔Also serves as a financing mechanism for corporation, although
without a set repayment schedule or set interest rate. When the corporation issues
shares of stock to the public each share of stock represents a stake in the particular
corporation. They are called shareholders.
✔✔How is the stock market characterized - ✔✔As being a highly marketable yet risky
investment. The volatility of returns in the stock market is due to the fact that a
, shareholder takes a second seat to the bond investor in terms of repayment. The stock
market is characterized as a limited liability investment in that its shareholders risk only
the amount they invest.
✔✔Real estate investing can be described as? - ✔✔Investing in real estate typically is
not just investing in buildings, but rather investing in the income stream tied to a
particular building, which is generated through the rent paid by the tenants.
✔✔Real estate investments may be considered a greater or less risked than bonds? -
✔✔In most scenarios, real estate investments exhibit greater rush characteristics than
bond investments; however real estate investments also have greater retune
expectations. In addition, by its nature direct investment in real estate is not considered
a highly liquid investment because it is not traded on a public basis like stocks and
bonds.
✔✔What is a REIT - ✔✔Real estate investment trusts are companies that have a
special tax status and can be listed on a public stock exchange.
✔✔NCREIF stands for what - ✔✔National Council of real estate investment fiduciaries
and measures the performance of real estate held by institutional investors.
✔✔S&P 500 - ✔✔Is a stock market index containing the stocks of 500 large-cap
corporations, most of which are American the index is the most notable of the many
indices owned and maintained by standard and Poor's. A division of McGraw-Hill.
✔✔Ten-year treasury bonds - ✔✔Is a marketable fixed interest us government debt
security that is issued with maturities of ten years or more. They make interest payment
semi annually and the income that holders receive is only taxed at the federal level.
They are the most followed metric of the US bond market.
✔✔Is it a good to have real estate as part of your portfolio? Why? - ✔✔A portfolio that
includes real estate maybe be less risky than one that does not. Real estate has also
proven to be a good hedge against inflation. That is when inflation heats up in the
economy owners of properties are usually able to increase the market rent.
✔✔What is a capital market as it applies to real estate - ✔✔The interaction between the
demand for real estate as an investment and the existing supply of space results in the
price of space in what is referred to as the capital market. The prices for space is often
expressed relative to the net operating income NOI that would be expected during the
first year of ownership of the property.
✔✔What is the ratio of NOI to the price investor are willing to pay - ✔✔The ratio of NOI
to the price investors are willing to pay for the property is referred to as the capitalization
rate or cap rate. The cap rate is what investors are will to Oahu for a dollar of NOI. The
value of the property is found as follows value=NOI/cap rate
GRADED A+
✔✔Prior to 1960 major institutions invested only in highly liquid bonds. Stocks were
ignored due to a lack of information and transparency. Now - ✔✔Investors are giving
significant attention to another major asset class commercial real estate. Commercial
real estate is a significant portion of the capital market and now considered to be an
asset class like stocks and bonds
✔✔When developing a risk and and return profile for a property you should keep what
important basic concept in mind? - ✔✔Commercial real estate has investment behavior
attributes similar to both the bond market and the stock market. Contract leases behave
like bonds, and the upside created in commercial real estate by re-tenanting and
repositioning simulates the investment characteristics of the stock market. It is often
thought that I leveraged, institutional commercial real estate should provide returns
somewhere in between bonds and stocks.
✔✔How does real estate help to reduce the overall risk of a portfolio - ✔✔The risk and
return of real estate may fall between that of stocks and bonds real estate tends to be
impacted by different economic events that stocks and bonds. Real estate tends to be
better in an inflationary environment. The returns for real estate are not highly correlated
with that of stocks and bonds including real estate in the portfolio tends to smooth out
the performance of the portfolio.
✔✔The bond market - ✔✔Serves as a financing mechanism for corporations. The
corporation issues the bonds, which have set parameters in terms of the repayment
schedule, coupon rate, term, and maturity.
✔✔Simple way to look at bond market - ✔✔As the investor serving as the lender, and
the entity (I.e., the corporation) issuing the bond serves as the borrower. Bonds are also
known as fixed-income securities because the investor knows how much they get and
when the bond will mature or be repaid.
✔✔Government issued bonds. - ✔✔Are known as treasury bonds. The structure and
pricing of government bonds are identical to that of corporate bonds however
government bonds typically are referred to as risk-fee-bonds as they essentially have no
risk of default.
✔✔Stock market - ✔✔Also serves as a financing mechanism for corporation, although
without a set repayment schedule or set interest rate. When the corporation issues
shares of stock to the public each share of stock represents a stake in the particular
corporation. They are called shareholders.
✔✔How is the stock market characterized - ✔✔As being a highly marketable yet risky
investment. The volatility of returns in the stock market is due to the fact that a
, shareholder takes a second seat to the bond investor in terms of repayment. The stock
market is characterized as a limited liability investment in that its shareholders risk only
the amount they invest.
✔✔Real estate investing can be described as? - ✔✔Investing in real estate typically is
not just investing in buildings, but rather investing in the income stream tied to a
particular building, which is generated through the rent paid by the tenants.
✔✔Real estate investments may be considered a greater or less risked than bonds? -
✔✔In most scenarios, real estate investments exhibit greater rush characteristics than
bond investments; however real estate investments also have greater retune
expectations. In addition, by its nature direct investment in real estate is not considered
a highly liquid investment because it is not traded on a public basis like stocks and
bonds.
✔✔What is a REIT - ✔✔Real estate investment trusts are companies that have a
special tax status and can be listed on a public stock exchange.
✔✔NCREIF stands for what - ✔✔National Council of real estate investment fiduciaries
and measures the performance of real estate held by institutional investors.
✔✔S&P 500 - ✔✔Is a stock market index containing the stocks of 500 large-cap
corporations, most of which are American the index is the most notable of the many
indices owned and maintained by standard and Poor's. A division of McGraw-Hill.
✔✔Ten-year treasury bonds - ✔✔Is a marketable fixed interest us government debt
security that is issued with maturities of ten years or more. They make interest payment
semi annually and the income that holders receive is only taxed at the federal level.
They are the most followed metric of the US bond market.
✔✔Is it a good to have real estate as part of your portfolio? Why? - ✔✔A portfolio that
includes real estate maybe be less risky than one that does not. Real estate has also
proven to be a good hedge against inflation. That is when inflation heats up in the
economy owners of properties are usually able to increase the market rent.
✔✔What is a capital market as it applies to real estate - ✔✔The interaction between the
demand for real estate as an investment and the existing supply of space results in the
price of space in what is referred to as the capital market. The prices for space is often
expressed relative to the net operating income NOI that would be expected during the
first year of ownership of the property.
✔✔What is the ratio of NOI to the price investor are willing to pay - ✔✔The ratio of NOI
to the price investors are willing to pay for the property is referred to as the capitalization
rate or cap rate. The cap rate is what investors are will to Oahu for a dollar of NOI. The
value of the property is found as follows value=NOI/cap rate
