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Question
REIT has an offer of $50 million five-year financing at 7% with 25 year amortization on your property. You have three choices for increasing the financing:$60 million five-year financing at 8% with 20 year amortization; add a$10 million preferred equity investment at 14% to the $50 mortgage or add a five-year interest-only $10 million second mortgage at 12% to the $50 million mortgage. Which is best?
Answer
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Related questions
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Valuation: NPV The owners of the Centre at New Hope purchased the property at the end of 2002. Adjusted NOI for 2003 was projected at $4 million and expected to rise at 5% per annum over a seven year hold period. The property was purchased at a 9% cap rate based on 2003 adjusted NOI. The owners expect that they will be able to sell it at the end of the holding period at an 8% cap rate. Can the owners achieve a 10% return? (Assume the owners are tax exempt)
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Valuation: Cap Rate The Crescent Arms is a 15 story luxury apartment building in New Orleans warehouse district. In 2009 the property had adjusted NOI of 2.5 million. The property was marketed to a broad range of investors and sold for 29.5 million. At what cap rate did the property sell?
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Which is not a real estate valuation method? a) DCF b) Price-earnings c) Comparable sales d) Capped NOI
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Which of the following are adjustments commonly made to NOI in a valuation exercise? I. Subtract Recurring Capital Expense II. Add Revenue Generating Capital Expense III. Subtract Mortgage Principal Payments IV. Add Management Fees V. Subtract Management Fees a) I, V b) II, III c) II, III, IV d) I, II, IV
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Under GAAP accounting commercial properties are depreciated over a 39 year life. Do you agree with this accounting treatment? Explain the basis for your answer. Can you suggest an alternative method?
Q:
General
An office building has 10,000 square feet. Average rent is $20 per foot. Average operating expenses are $10 per foot. The average expense stop is $6 per foot. Every fifth year a 5,000 square foot tenant comes up for renewal and it costs $25 per foot to replace the tenant (leasing commissions and tenant allowance). Non revenue generating capital expenditures is $1 per foot per year. What is the stabilized pre tax cash flow?
a) $105,000
b) $65,000
c) $25,000
d) $5,000
Q:
Depreciation
Stoney Creek, a 300 unit apartment complex in New Jersey was purchased in 1999 for $ 12 million. Thirty percent of the purchase price was allocated to land. How much depreciation should have been taken in 2010?
Q:
Adjustments to NOI: Vacancy Loss
Marvin Gardens a 200 unit B grade apartment complex in Scottsdale Arizona is currently 97% occupied and has Rent Revenue of $2,328,000 per year. Net Operating Income for the period is $1,500,000. Next year the propertys rents will not increase, expenses will remain constant. Vacancy Loss will be 5% of Gross Potential Rent. Estimate the Gross Potential Rent, Vacancy Loss and NOI for next year.
Q:
Which of the following measures is best utilized to compare leasing alternatives?
a) Base Rent.
b) Minimum Rent.
c) Average Rent.
d) Effective Rent.
Q:
One of the following was not a result of the financial crisis: a) Interest-only loans b) Increased amortization c) Higher credit spreads d) Lower LTV limits
Q:
If LTV increases and debt service coverage decreases what is the impact on the cost of debt? a) decreases b) remains the same c) increases d) no impact
Q:
You believe your property is reaching peak cash flow potential. You can sell an equity joint venture interest to a pension fund or increase the amount of the first mortgage outstanding. What are the implications of each of these choices? You read an article in the local paper about a new development that threatens the market dominance of your property. Does this change your choice of financing?
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If the property ROA is 10% for which Kd is the leverage positive? a) 10% b) 8% c) 12% d) 14%
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Which of the following is not a reason to sell an asset in a sale-leaseback transaction? a) because the property owner does not want to use the space b) to transfer depreciation expense to an investor c) as an alternative to refinancing the property d) to provide financing for a new acquisition
Q:
Characteristics of Reg D offerings generally include all of the following except:
a) limited to accredited investors
b) greater than 100 investors
c) Less than 35 investors
d) exemption from registration
Q:
Substantial economic effect does not require
a) pro rata allocations
b) allocations that are reflected in capital accounts
c) liquidations in accord with capital accounts
d) restoration of deficit capital accounts
Q:
Which of the following protects the owner of the senior tranche of a CMBS? I. Overcollateralization II. Prepayment speed III. Underwriting standards IV. Pool diversification a) I,II,III b) I,III,IV c) I,II d) II,III,IV
Q:
Which is more important to the value of an investment in mortgage backed securities: a) the structure of the securities or b) the underwriting criteria used to originate the mortgage collateral? Why?
Q:
Introducing new business practices to a market is called X and generates Y
i) market transparency
ii) first mover advantage
iii) technology transfer
a) i,iii
b) i,ii
c) ii,iii
d) iii,ii
Q:
Global property investment is always more profitable than domestic investing?
True or False
Q:
Landlords can supply which incentives for corporate relocation?
i) job creation tax credit
ii) access to lower cost capital
iii) moving allowance
iv) tenant allowance
v) lease buy-out
a) i,ii,iii
b) ii,iii,iv,v
c) i,iii
d) ii,iv
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Which is not a factor in choosing a corporate location?
a) access to transportation
b) sufficient utilities
c) availability of skilled labor
d) availability of greenhouse gasses
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Which is a method used by corporations to reduce the amount of property on the companys balance sheet?
a) sale-leaseback
b) industrial development bond
c) historic tax credit
d) enterprise zone
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Hyper Development Company builds and sells condominiums at vacation destinations on three continents. An investment banker recently proposed that Hyper restructure as a REIT. What could they have been thinking?
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In many cases, new housing developments require additional infrastructure. Who pays the cost of building and supporting the infrastructure? a)Developers b)Homebuyers c)Government d)All of the above
Q:
Put the stages of the land development process in the proper order: a) Contact Broker, Option, Development, Sales b) Contact Broker, Development, Option, Sales c) Development, Contact Broker, Sales, Option d) Option, Contact Broker, Sales, Development
Q:
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Which tranche takes the greatest risk in CMBS?
a) Residual
b) Senior
c) Subordinated
d) PSA
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Q:
Five years ago you invested in a brand new 100,000 square foot office building. The building was fully leased to great tenants with 10 year leases. You financed your purchase with a ten year mortgage at a rate that would be considered high in todays market. You can refinance today and get a new ten year loan at a lower rate. You will however be required to pay your current lender a steep prepayment penalty. You can also wait until the loan comes to term and repay the loan without any penalty. This was your plan until you recently read about a brand new office park being discussed for the old farm just a mile down the road. Coincidentally, this development, if built, could open just as your tenant leases are coming up for renewal. What are your thoughts?