Real Estate Finance and Investment

(C) A reduction in the cost basis of acquired stock (D) A reduction in losses on the stock 34. The early growth of the REIT industry in the 1970s was mainly attributed to which of the following? (A) (A) Popularity of mortgage trusts (B) Deregulation of the industry (C) Declined performance of other investments (D) Increased value of real property throughout the country - 5 -

RES | 3200 | Real Estate Finance and Investment | lecture notes | (C) A reduction in the cost ba

33. Which of the following expenses would NOT be included in an operating statement used to calculated net operating income in the income approach to value? (D) (A) Reserves for replacement (B) Maintenance (C) Real estate taxes (D) Capital additions 34. A property is sold for $200,000. Typical financing terms are an 85% loan with a 10% interest rate over 15 years. If the before-tax cash flow is $2,000, what is the overall capitalization rate? (B) (A) 10.96% (B) 11.96% (C) 19.13% (D) 9.96% 35. A property produces a first-year net operating income of $24,000. Because of the long economic life of the building, the income is considered as a perpetuity that will grow by 2.5% per year. Using a discount rate of 9.5%, the property value is estimated at: (D) (A) $276,968 (B) $252,632 (C) $200,000 (D) $342,857 36. A property is leased for $24,000 per year although market rents are currently $27,500 per year and are expected to increase by 2% per year. The property is expected to be sold at the end of year 10 based on a 10% terminal cap rate applied to the eleventh year NOI. The current lease on the property will expire at the end of year 10 so the property can be leased in the eleventh year at market rates. What is the value of the leased fee estate based on an 11.5% discount rate? (C) (A) $362,489 (B) $298,325 (C) $251,298 (D) $271,486 37. The discount rate is a rate that a typical investor would normally require as a(n) ___ return over investment holding period. (C) (A) Maximum (B) Risk free (C) Expected (D) Historical 38. Total possible income less any vacancy is ___. (A) (A) EGI (B) PGI (C) NOI - 5 - (D) GIM 39. Which of the following is TRUE concerning the capitalization rate? (C) (A) It is an IRR (B) It explicitly considers projected future income and changes in property value over time (C) It expresses relationships between income and property value at a specific point in time (D) It is the rate of return that investors expect to earn on all capital invested 40. Capitalization rates will differ from yield rates when the income is expected to __________ over time. (D) (A) Stay the same (B) Decrease (C) Decrease (D) Both B and C. 41. Which is of the following is NOT normally considered when conducting an appraisal using the cost approach? (C) (A) Functional obsolescence (B) Effective age (C) Capitalization rate (D) Replacement cost 42. Which lease has the LOWEST effective rent? (B) Lease Year 1 Year 2 Year 3 Year 4 Year 5 A 10 11 12 13 14 B 0 13 14 15 16 C 0 0 20 20 22 D 15 14 13 12 11 (A) Lease A (B) Lease B (C) Lease C (D) Lease D - 6 -

RES | 3200 | Real Estate Finance and Investment | lecture notes | 33. Which of the following exp

32. Which of the following is FALSE regarding an expense stop? (A) (A) All operating expenses are covered by the stop (B) The passthrough is based on the tenant’s percentage of total leasable area (C) Expenses to be included must be agreed upon and included in the lease (D) The stop is often based on the actual amount of operating expenses at the time the lease is signed 33. Which of the following is FALSE regarding expense stops? (C) (A) Expense stops protect owners against increases in expenses (B) Expense stops are usually based on expenses during the first term of the lease (C) Expense stops can pass through expense savings to tenants (D) Expense stops provide some protection against inflation 34. The minimum lenders typically require for a DCR is: (C) (A) 0.8 (B) 1.0 (C) 1.2 (D) 1.5 35. Which of the following is FALSE regarding DCR? (B) (A) It indicates whether NOI is sufficient to cover mortgage payments (B) It is not of concern to lenders when loan to value ratios are low (C) It is an indication of risk for the lender (D) It is derived from NOI / Mortgage Payment 36. Net sale proceeds less adjusted basis of the property determines which of the following? (D) (A) After-tax net present value of the property (B) Depreciation allowance for the property (C) Before-tax net present value of the property (D) Capital gains or losses - 5 -

RES | 3200 | Real Estate Finance and Investment | lecture notes | 32. Which of the following is 

(B) They lower the effective cost if the loan is repaid before maturity (C) They are equivalent to charging additional points for the loan (D) They are not included in the APR calculation - 5 -

RES | 3200 | Real Estate Finance and Investment | lecture notes | (B) They lower the effective c

BF14e_TB_Ch22.doc-CHAPTER 22 Real Estate Investment Performance

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