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Question
All of the following relate most directly to the benefit side of the real estate development NPV equation, except:a) The construction and absorption budget.
b) The operating budget.
c) The projected cap rates in the built property market.
d) The rents in the built property market.
Answer
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Related questions
Q:
The difference between the net operating income (NOI) and the equity before-tax cash flow (EBTCF) is:
a) Property Tax Expense and capital expenditures.
b) The debt service and capital expenditures.
c) Property taxes and income taxes.
d) Interest expense and depreciation expense.
Q:
In the problem above, what is the after-tax cash flow to the equity investor if the income tax rate is 35%?
Q:
The NOI is $850,000, the debt service is $600,000 of which $550,000 is interest, the depreciation expense is $350,000. What is the Before-tax Cash Flow to the equity investor (EBTCF) if there are no capital improvement expenditures or reversion items this period?
Q:
The NOI is $120,000, the debt service is $90,000 of which $85,000 is interest, the depreciation expense is $45,000. What is the Before-tax and After-tax Cash Flow to the equity investor (EBTCF, & EATCF) if there are no capital improvement expenditures or reversion items this period, and the income tax rate is 35%?
Q:
A non-residential commercial property which cost $500,000 is considered to have 30 percent of its total value attributable to land. The annual depreciation expense chargeable against taxable income is:
a) $18,182
b) $15,873
c) $13,967
d) $8,974
Q:
The "Equity" in a real estate investment refers to:
a) The legal "fairness" of the contract between the buyer and seller.
b) The price at which the lender's and borrower's values are balanced.
c) The lender's share of the property value.
d) The borrower's or owner's share of the property value.
Q:
In the Discounted Cash Flow (DCF) valuation procedure:
(a) The cash flows should represent a conservative or pessimistic forecast, so as to make sure you don't encounter unexpected problems later on.
(b) The cash flows should represent an aggressive or optimistic forecast, to help sell the property as quickly as possible.
(c) The cash flows should be realistic best-guess forecasts, as risk always has both an "upside" and "downside".
(d) The cash flow forecast should obey the "G.I.G.O" rule: "Get In and Get Out" before the market crashes.
Q:
Consider the following period-by-period total returns:
Year 1: 5.00%
Year 2: 15.00%
Year 3: 25.00%
What is the arithmetic average total return per year for the Years 1-3 period?
(a) 5.00%
(b) 14.71%
(c) 15.00%
(d) 15.23%
(e) 45.00%
Q:
All are true, except:
(a) The "Risk Premium" is the total expected return minus the risk-free rate.
(b) "Risk" is the possibility the ex post return may differ from the ex ante expectation.
(c) "Risk" is measured by the standard deviation of the distribution of returns.
(d) Higher risk is associated with higher expected returns.
Q:
All are ways to break up (or add up to) the total return except:
(a) Income + Appreciation
(b) Yield + Capital Gain
(c) Riskfree Rate + Risk Premium
(d) Real Return + Inflation Premium
(e) Nominal Return + Real Return
Q:
The present value of the future sum of $30,000 two years from now, if the opportunity cost of capital is 15% nominal annual rate of return compounded monthly is:
Q:
Which statement is most accurate?
(a) Real Estate is a better inflation hedge than Treasury Bills.
(b) Stocks are a better inflation hedge than Real Estate.
(c) Long-Term Bonds are a better inflation hedge than real estate.
(d) Real estate is a better inflation hedge than stocks.
Q:
All of the following are examples of the "income objective" of investment except:
(a) A 65-year-old planning how to use his wealth to support himself now that he is retired.
(b) A pension fund trying to match revenues to its current pension payout needs.
(c) A university endowment fund wanting to use gift assets to fund an annual scholarship program.
(d) A 25-year-old planning to be able to buy a house in 5 years.
(e) A bank investing assets so as to be able to pay interest on current savings deposits.
Q:
Improvements in transportation infrastructure will tend to:
a) Increase the value of geographical location centrality
b) Reduce the value of geographical location centrality
c) Have no effect on the value of geographical location centrality
d) Cannot determine with the information given
Q:
At site "A" the best current construction project is a retail plaza that would cost $3,000,000 to build (exclusive of land cost) and would then generate net rents of $400,000/yr, expected to grow at 2% per year indefinitely. At site "B" the best current construction project is an office building that would generate net rents of $500,000 per year, expected to remain constant. Construction of the office building would cost $4,000,000 (exclusive of land cost). Suppose investors require a cap rate (current net income as percent of investment) equal to 10% minus the expected annual growth rate in the net income.
Suppose the current market value of both undeveloped sites is $1,500,000 each. On which site or sites is it currently profitable to develop?
(a) Site A.
(b) Site B.
(c) Both sites A and B.
(d) Neither site A nor B.
Q:
At site "A" the best current construction project is a retail plaza that would cost $3,000,000 to build (exclusive of land cost) and would then generate net rents of $400,000/yr, expected to grow at 2% per year indefinitely. At site "B" the best current construction project is an office building that would generate net rents of $500,000 per year, expected to remain constant. Construction of the office building would cost $4,000,000 (exclusive of land cost). Suppose investors require a cap rate (current net income as percent of investment) equal to 10% minus the expected annual growth rate in the net income.
Based on the current best projects described above, which site is most valuable?
(a) Site A.
(b) Site B.
(c) Both sites are equal in value.
(d) Insufficient information to answer the question.
Q:
A simple monocentric city (Roundville) has a population of 3,000,000 with a homogeneous density of 5 inhabitants per acre, and one person per household. Agricultural rents are $500/acre/yr, housing construction costs (including developer profit) can be paid for with a perpetual loan charging interest of $5000/house/yr, and transportation costs are $250/person/yr per mile of distance from the center of the city. (Recall that there are 640 acres per Mi2.)
If Roundville's population increases by 10% but its density remains constant, approximately how much will its radius increase?
(a) None.
(b) 5%.
(c) 10%.
(d) 20%.
Q:
As opposed to the concentric ring model of urban growth, the sector model dictates that similar land uses tend to:
a) Mix naturally over time, leading to a more integrated city
b) Lie at a similar distance from the center of the city
c) Cluster along rays or in pie-shaped wedges emanating from the center
d) Be dictated more by ephemeral political coincidence than by well considered plans
Q:
According to the rank/size rule (Zipf's Law), the rank of a city's population should be approximated by knowledge of the following two factors:
a) The city's population and the population of the largest city in the system of cities
b) The city's population and the city's growth component
c) The city's growth component and the population of the largest city in the system of cities
d) The city's population and the objective rank of how nice the city is
Q:
The primary centralizing (centripetal) forces acting on a city include the following, except:
a) Economies of scale
b) Economies of agglomeration
c) High population density
d) Positive locational externalities
Q:
The difference between gross absorption and net absorption is best described as follows:
(a) Gross absorption indicates the total amount of movement in the market while net absorption indicates the growth in overall demand.
(b) Gross absorption indicates the growth in overall demand while net absorption indicates the total amount of movement in the market.
(c) Gross absorption indicates demand for both Class A and Class B space, while net absorption refers only to demand for Class A space.
(d) The wise student realizes that, at a deep and fundamental level, gross absorption and net absorption are really the same thing!
Q:
According to Neighborhood Succession Theory, in a mature (fully built up) neighborhood:
(a) Location value tends to grow steadily over time in real terms (net of inflation).
(b) Location value tends to decline steadily over time in real terms.
(c) Location value tends to remain about constant in real terms unless there are substantial changes in the city, under which case value might go in either direction.
(d) Location value is determined purely by the average income of the residents.
Q:
Industry Local Employment National EmploymentState & Federal Government 50,000 10,000,000Legal Services 13,000 2,000,000Computer Manufacturing & Repair 4,000 2,500,000Total All Employment 200,000 120,000,000Which of the three industries in the above table is not in the export sector of this locality?(a) State & Federal Government.(b) Legal Services.(c) Computer Manufacturing & Repair.(d) They all are in the export base.
Q:
Real estate space markets are segmented for all of the following reasons except:
(a) Space users require specific locations and types of buildings.
(b) Built space is fungible.
(c) Buildings cannot move.
(d) It is difficult and expensive to change buildings from one usage type to another (e.g., from office to apartment).
Q:
Suppose demand for apartments in a metropolitan area is: #Apt.units=60,000 +(0.30)(# households)-(80)*($Rent/unit/mo.)
In the question above, suppose the number of apartment units remained at 88,000 while the number of households grew from 200,000 to 220,000. To what level would real rents rise?
(a) $500
(b) $475
(c) $450
(d) $425
(e) Cannot be determined from the information given.
Q:
Which are the two fundamental markets in commercial real estate?
(a) The space market and the asset market.
(b) The space market and the money market.
(c) The construction market and the land market.
(d) The asset market and the stock market.
Q:
A certain property market is characterized by 100,000 SF spaces that are expected to rent in 8-year fixed-rent leases, successively in perpetuity (annual payments at the ends of the years). Properties are typically sold just after a lease is signed (1 year prior to first rent payment). There is no vacancy down-time between the successive leases. The rent in each lease is constant, but between new lease signings the rent is expected to grow at a rate of 2% per year. The current market rent is $10/SF per year. In general, the rents are uncertain prior to lease signings. The opportunity cost of capital (OCC) for investments providing contractually-fixed cash flows is 6% per year, and the typical prevailing cap rate in this property market is 7%. (a) What is the market value of space per square foot? (b) What is the implied inter-lease discount rate applicable to risky cash flows that depend on the real estate market?
Q:
Suppose market rate apartments produce net cash flow of $10,000/yr in perpetuity, while affordable units provide only $5,000. However, if the developer commits that 25% of the units will be forever affordable, then she will qualify for a perpetual loan $4,375,000 at an interest rate 50 basis points (0.5%) below the market interest rate. (However, this is not a tax-exempt loan " its interest is taxable.) Also, the developer can receive perpetual (and transferable) annual LIHTC equal to $1,000/yr per low-income unit. If property yields (total returns, opportunity cost of capital) are 10% at the PBT level (assume same for market and affordable apartments), loan market interest rates before-tax are 5%, yields on otherwise similar municipal bonds (tax-exempt loans) are 4%, and the developer faces an income tax rate on investment returns of 20%, then should the developer make her 100-unit apartment complex a mixed-income affordable development or a 100% market development? Tell why, and how much difference it makes (i.e., evaluate the two alternatives). Answer this question from a market value (MV) perspective (but be careful: the LIHTCs are after-tax cash flows).
Q:
The table below shows the projected net cash flows (including reversion) for Property A and Property B. If both properties sell at fair market value for a cap rate (initial and terminal net cash yields) of 7%, then which statement below correctly describes the relative investment risk in the two properties?Annual net cash flow projections for two properties ($1,000,000s):Year:12345678910A$1.0000$1.0000$1.0000$1.0000$1.0000$1.0000$1.0000$1.0000$1.0000$15.2857B$1.0000$1.0200$1.0404$1.0612$1.0824$1.1041$1.1262$1.1487$1.1717$18.6093(a) Property A is more risky.(b) Property B is more risky. (c) They both are equally risky.(d) Insufficient information to determine the answer.
Q:
Projected Year 1 NOI: $100,000.Projected Year 11 NOI: $121,899.Projected Year 10 resale (reversion) value: $1,523,738.Current (going-in) market cap rate for similar properties: 7%.What is the current market value of the property?(a) $7,000.(b) $1,000,000.(c) $1,428,571.(d) $1,741,414.(e) Insufficient information to determine answer.