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Question
Consider an investment in which a developer plans to begin construction of a building one year if, at that point, rent levels make construction feasible and the building will cost $1million to construct. There is a 50 percent chance that NOI will be $160,000 and a 50percent chance that NOI will be $80,000. Using the traditional approach, similar to the "highest and best use" approach, what would be the land value of the property assuming a cap rate of 10 percent (12 percent discount rate and an NOI growth rate of 2 percent)?(a) $120,000
(b) $200,000
(c) $300,000
(d) $833,333
(e) $1,000,000
Answer
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Related questions
Q:
A REIT has an NOI of $15 as share and currently pays a dividend of $10 a share. The dividend is projected to increase by 4percent by next year and continue to increase by 4percent per year thereafter. Assuming that the blended cap rate is 9.75percent and the required rate of return is 10.5percent, what value would the Gordon Dividend Discount Model provide?
(a) $60.15
(b) $71.89
(c) $153.85
(d) $160.00
(e) $190.00
Q:
Funds from operation (FFO), is calculated by adding back depreciation and amortization and other non-cash deductions to earnings.
Q:
At least 95 percent of the value of a REIT's assets must consist of real estate assets, cash, and government securities.
Q:
Duration, as referred to in this chapter, is defined as:
(A) A measure of the extent to which different investments expose an investor to interest rate risk
(B) A measure of the weighted-average time required before all principal and interest is received on an investment
(C) A measure that takes into account both the size of cash flows and the timing of their receipt
(D) All of the above
Q:
The credit rating of an MPTB depends largely on the:
(A) Amount of overcollateralization
(B) Degree to which government-related securities constitute the excess collateral
(C) Riskiness of the mortgage in the underlying pools
(D) All of the above
Q:
A derivative security derives its value from another security, index, or financial claim.
Q:
In 2008, Fannie Mae was spun off in an initial public offering as a private company.
Q:
Which of the following is NOT a measure of risk related to real estate investment funds?
a. Tracking error
b. Beta
c. TWR
d. Jensen's Alpha
Q:
Unrealized returns are important to investors in assessing the performance of their investments and of their fund manager(s).
Q:
In reporting on a fund's investment performance, managers are generally permitted to provide investors with internally performed appraisals at specific time intervals. Third-party, external appraisals are required only when a property is sold.
Q:
A new real estate investment fund might feature a "lock-up period" that would prohibit investors from exiting the fund during the fund's first year or two in operation.
Q:
What term applies to third-party financing that is used between funds advanced by the permanent lender and funds needed to repay the construction loan?
(A) Interim loan
(B) Mini-perm financing
(C) Gap financing
(D) Partial financing
Q:
If sold today
If sold next year Sale price
$2,500,000
$2,650,000 Mortgage balance
1,000,000
900,000 Capital gain tax
112,500
135,000 Cash flow
$1,387,500
$1,615,000 NOI over next year $50,000 Consider the information in the table above. What is the marginal rate of return for keeping the property one additional year?
(a) 16.4%
(b) 20.0%
(c) $50,000
(d) $277,500
Q:
Which of the following is NOT a typical benefit of renovating a property?
(a) Increasing rents
(b) Lowering vacancy
(c) Increasing operating expenses
(d) Increasing the future property value
Q:
One factor an investor should consider when trying to decide whether to dispose of a property he or she has owned for several years is the expected IRR for holding versus sale of the property.
Q:
C-corps have the advantage of providing a pass-through of income for tax purposes.
Q:
Generally, which of the following is FALSE regarding interest rate risk management techniques?
(A) Borrowers can protect themselves from upward movements in interest rates by using interest rate caps
(B) Borrowers can protect themselves from upward movements in interest rates by using interest rate futures contracts
(C) Borrowers can benefit from downward movements in interest rates by using interest rate caps
(D) Borrowers can benefit from downward movements in interest rates by using interest rate futures contracts
Q:
A feasibility study analyzes whether a tract can be purchased and developed profitably.
Q:
Option contracts are used to reserve a parcel of land so that it will not be sold to someone else, while the developer does preliminary analysis of the site.
Q:
In the context of a lease, percentage rents generally indicate that:
(A) The tenant will pay a proportionate amount of rent for his space in comparison to the total net rentable area
(B) In addition to a base rent, the lessor will receive a percentage of the tenant's cash flow above some break even point
(C) The tenant will pay a rent that is a certain percentage of the national average
(D) None of the above
Q:
Mini-perm loans usually refer to financing:
(A) At local coffers
(B) For lease-up period
(C) For construction and all subsequent periods
(D) For construction, lease-up, and one or two subsequent years
Q:
Which of the following is one reason that construction lenders typically prefer the cost approach to valuation over the income approach?
(a) The cost approach provides a more conservative estimate of value
(b) The cost approach provides a more optimistic estimate of value
(c) The cost approach is a good indication of the expected value of an income-producing property once construction is complete and it has been leased-up
(d) The cost approach is a better estimate of actual market value of the project
Q:
Which of the following is NOT a component of lease rollover risk?
(a) Commissions paid to a leasing agent to find a new tenant
(b) Costs of tenant improvements demanded by new tenants
(c) Liquidity risk
(d) Reduced revenues from vacancy until a new tenant is found
Q:
Which of the following typically would NOT be used as a basis for a participation loan?
(A) Increase in value over the holding period
(B) NOI in excess of a base amount
(C) Cash Flow after regular Debt Service
(D) Potential gross income
Q:
Which of the following is also referred to as a negative amortization loan?
(A) Participation loan
(B) Accrual loan
(C) Convertible loan
(D) Interest only loan
Q:
All other things being equal, which of the following best describes the effects of leverage on an investment's risk-return characteristics (assuming the expected return is greater than the lending rate)?
(a) Lower expected return, lower risk
(b) Lower expected return, higher risk
(c) Higher average return, higher risk
(d) Higher average return, lower risk
(e) Risk-return characteristics have no role in investment decision making
Q:
Under which conditions would one be MOST LIKELY to see an interest rate swap?
(a) A borrower wants a fixed rate loan, but the bank only offers floating rate loans; the borrower "swaps" loans with someone who has a fixed rate loan
(b) A borrower does not have enough equity for a conforming loan, so he or she takes out a "second" mortgage loan
(c) A borrower does not have enough equity for a conforming loan, so he or she "swaps" mortgage insurance for increased equity investment
(d) A bankruptcy court orders a lender to "swap" a debtors high interest rate for a lower interest rate
Q:
One benefit of leverage is that it reduces the variation in returns or losses.
Q:
Financial leverage is defined as the benefits that may result to an investor by borrowing money at a rate of interest that is lower than the expected rate of return on total funds invested in a property.
Q:
The real estate industry:
(a) Is highly competitive
(b) Is a relatively small market
(c) Is relatively concentrated, with a few owners controlling most of the market in most markets
(d) All of the above
(e) None of the above