Q&A Hero

Q: Rent: Releasing In the event that DCH does not renew its 10,000 square foot lease we will need to release the space. DCH has been in the space for 15 years and it will need a complete interior renovation. This will cost $25 per square foot. It will also cost 3% of the total rent for the new tenants first term as a leasing commission. What will it cost to release the lease the space to a new tenant for a five year term at a $20 per square foot rent level?

Q: Rent: Renewal: CPI Dewie Cheatham and Howe (DCH), a local CPA firm, has a gross lease on 10,000 square feet of space in a suburban office building. The lease is now at the end of its first term. It has a renewal option for an additional term that calls for the new rent to be set at the old rent plus an adjustment for the change in the CPI. The CPI Index was at 106.9 at the beginning of the lease term, it is now at 125.4. The original rent was $10 per foot. What is the renewal rent?

Q: Rent: Renewal Jeffs Investment Firm is currently paying $15 per foot in annual gross rent. Jeffs Investment Firm is renting 5,000 square feet. Jeff has the option to renew his lease for a three year term at a 5% rent increase. What is Jeffs new annual payment to the landlord?

Q: Rent: Percentage Buttercups Baubles agrees to pay $20 per foot in annual rent with 8% percentage rent over a natural breakpoint. CAM Expenses are $5 per square foot. Buttercups Baubles is renting 5,000 square feet. Buttercups sales are $1.5 million this year. Including expenses, what is Buttercups annual payment to the landlord?

Q: Rent: Stop Bobs CPA Firm agrees to pay $25 per foot in annual rent with a $ 4 per square foot expense stop. Expenses this year are $5 per square foot. Bobs CPA Firm is renting 50,000 square feet. Including expenses, what is the amount of Bobs payment to the landlord?

Q: Rent: Gross Jons Law Firm agrees to pay $20 per foot in annual gross rent. Expenses are $5 per square foot. Jons Law Firm is renting 10,000 square feet. Including expenses, what is Jons annual payment to the landlord?

Q: Pro Rata Allocation of Expenses Harrys Hat Shop operates a 2,000 square foot store in New Market Mall. There are 100 stores in New Market Mall totaling 400,000 square feet. What is the pro rata allocation of expenses to Harrys Hat Shop?

Q: Loss Factor and Load Factor An office building has a 5,000 square foot floor plate. A 1,000 square foot portion of each floor is used for common area including restrooms, elevator and common lobby. Calculate the load factor and the loss factor for this building.

Q: Usable vs. Rentable Space An office building has a 2,000 square foot floor plate. A 500 square foot portion of each floor is used for common area including restrooms, elevator and common lobby. What is the rentable and usable square footage of each floor?

Q: A cash-out refinancing is: a) Subject to tax b) Not subject to tax c) Impacts depreciation d) Decreases basis

Q: Capital gain tax is paid if: a) Price improvement is greater than zero b) Price is greater than depreciated book value, less than original cost c) Price is less than depreciated book value d) None of the above

Q: Recapture tax is paid if: a) Land has appreciated b) Sale price is greater than depreciated book value c) Sale price is less than depreciated book value d) None of the above

Q: What is a step up on death? a) Free pass though the pearly gates b) Increase of basis to fair market value c) Increase in estate taxes for family members d) Improvement to property management after founder's death

Q: A limited partner in a real estate partnership: a) Can only lose the amount they have invested b) Can be forced to contribute additional capital c) Can manage the affairs of a partnership d) Is subject to entity level taxation

Q: Which is the proper accounting for a mortgage payment? a) Debit: Cash, Credit: Debt Service b) Debit: Debit Service, Credit: Cash c) Debit: Interest Expense and Mortgage Principal, Credit: Cash d) Debit: Cash, Credit: Interest Expense and Mortgage Principal

Q: The wealth management practice of your investment bank has asked you to open a client service office in the DC metro area. You will need 10,000 feet of office space. Identify three potential suburban markets and compare them to two submarkets in the District. Develop a one page comparison of the submarkets and choose the one that you like best for your intended purpose.

Q: One of your top competitors calls with an intriguing proposition. He wants to sell you a great property at a time when the market is very strong and few quality assets are trading. The metrics for this particular asset are strong as well, but there is only one big problem, it is located in Grand Rapids, Michigan. There is general concern in the media and the property marketplace regarding Michigan and its economic future. Create a one page comparison that looks at the economy of Grand Rapids, Michigan, placing it in the context of its state and the nation as a whole. What do you think of making a major investment in Grand Rapids?

Q: You have just attended a real estate conference at which a famous private equity investor has made the case for investing in Brazil and India. Your fund is currently a US domestic real estate investor but you have been considering an international component as part of your next fund. Build a one page analysis comparing the economies and political structures of both countries with the US. What findings are particularly important to a real estate investor?

Q: Asset level due diligence for an existing property includes all of the following historic performance metrics except? a) Rent b) Vacancy c) Operating expenses d) Time to entitlement

Q: Good sources of real estate market information include? a) Economic development officers b) Regional planning officers c) Bankers and real estate lawyers d) all of the above

Q: Which factor does not contribute to regional concentration within a particular industry? a) Concentration of skilled workforce b) Location of relevant institution of higher education c) Availability of unique natural resources d) Geographic isolation

Q: Which age trends are most favorable for economic growth? i) Birth rate < replacement ii) Birth rate > replacement iii) Average age increasing iv) Average age decreasing a) i,iii b) ii,iii c) i,iv d) ii,iv

Q: Climate, natural features, natural resources and availability of water and power are examples of factors that determine a countrys a) economic advantage b) cost of living c) level of immigration d) political system

Q: Which of the following is true regarding economies that are heavily dependent on a single industry? a) Economic growth is slower than average b) Economic growth is faster than average c) Economic risk is higher than in diverse economies d) Economic risk is lower than in diverse economies

Q: Which of the following is false? a) Retail property demand is increased by rising consumer confidence b) Hotel demand is decreased by rising corporate profits c) Office demand is impacted by GDP growth d) Multifamily demand is increased by job growth

Q: All of the following are indicators of a strong regional real estate market except: a) Broad industrial base b) Access to transportation c) Abundant natural resources d) High unemployment

Q: Which of the following are considered positive economic indicators for real estate? i) GDP growth ii) Rising unemployment iii) Rising consumer confidence iv) Declining corporate profits a) i,ii b) ii,iii c) i,iii d) i,iv

Q: The sum of the occupancy rate and the vacancy rate for the same property are: a) Always 100% b) Always greater than 100% c) Always less than 100% d) Are unrelated

Q: Lodging Co is an owner / operator that has historically invested in mid priced business hotels. In recent years, this has proven to be a property type with very volatile performance. The company is seeking to diversify its investments to include other types of property. Which other types of property should the company consider? If the company broadens its investment portfolio what impact will it have on their operations?

Q: Future Investments is a pension fund management company seeking to diversify into the ownership of real estate. They have identified a portfolio of twenty properties located across the state of California. They are considering the form of the entity in which they will hold the properties as well as whether or not to create their own property management company. What are their options and what facts must they consider in making their decisions.

Q: Tenants are constantly complaining that the temperature in the office building is either too hot or too cold. Which type of engineering firm should the owner call in order to see if the HVAC design is correct? a) Environmental b) Civil c) Mechanical d) Bio Medical

Q: A real estate company has an opportunity to acquire a large portfolio of hotels located along the eastern seaboard. The acquisition will require many different types of financing and sophisticated structuring advice. Which financial institution is best suited to this task? a) Commercial Bank b) Investment Bank c) Mortgage Broker d) None of the above

Q: Which type of equity structure offers all investors the most protection against personal liability? a) Limited partnership b) Joint venture c) General partnership d) Corporation

Q: An investor has just purchased the office building where her office is located. She is visiting her insurance broker to buy insurance for her new acquisition. What type of insurance is she least likely to buy? a) Property Casualty b) Personal Lines c) Liability d) Title

Q: An office park property has lost occupancy because a large corporate tenant that had space in a number of buildings has decide to relocate to another city. The market for other office properties in my area is still good and I think my property is well located and in good physical condition. Whom do I call? a) Property brokerage company b) Construction company c) Leasing company d) Law firm

Q: Apex Office Building is a circa 1950 mid rise office building in a rapidly improving commercial corridor in Big City. Which professional has the responsible for developing a new competitive strategy for this property? a) Portfolio manager b) Asset Manager c) Property manager d) Commercial banker

Q: Jon intends to build a new convenience store on a property and operate it until he retires in 25 years. Each month he will pay fee to his landlord for the use of the land. At the end of the period he will no longer own either the land or the building. What type of interest does Jon have in the property? a) Fee Interest b) Easement c) Leasehold d) Syndication

Q: Which of the following are not considered direct interests in real estate i) Buying a shopping center ii) Buying a share in an office building REIT iii) Buying a 50% of an office building iv) Buying a security from a REMIC a) i,iv b) ii,iv c) ii, iii d) they are all direct investments

Q: At which kind of retail properties can shoppers not drive up to stores? a) power center b) lifestyle center c) regional mall d) shopping center

Q: Which of the following is not considered commercial real estate? a) single family housing b) shopping center c) biotech laboratory d) office building

Q: Describe how floor plans work in the automobile industry. Why can finance companies offer these arrangements at a lower cost than banks?

Q: Describe the process of factoring? When and why is it used?

Q: What are the various types of finance companies?

Q: Discuss the types of risk faced by finance companies. Are these risks similar to banks?

Q: Discuss the regulatory environment for finance companies relative to commercial banks.

Q: What factors explain the existence of finance companies, given that banks already provide loans, credit, and so forth?

Q: Like the consumer finance market, finance companies face many regulations in the business loan market.

Q: Usury statutes limit the level of interest rates that finance companies can charge their customers.

Q: A sales finance company differs from a captive finance company primarily in regulations and other restrictions.

Q: Consumer finance companies make loans to borrowers who would not qualify for bank loans due to low income or poor credit.

Q: In a lease financing arrangement, a finance company will purchase equipment, which it then leases to a company for a set period.

Q: Factoring refers to purchasing a firm's accounts receivables at a premium.

Q: Much like banking institutions, interest-rate risk is a big concern for finance companies.

Q: Lease financing is an example of a business financing need not served by most banks.

Q: Finance companies face much stricter regulations than commercial banks.

Q: Finance companies essentially sell commercial paper and use the proceeds to make loans.

Q: Many retailers established finance companies to provide financing for their customers. Although these finance subsidiaries did increase sales, the subsidiary was typically unprofitable.

Q: A balloon loan requires periodic payments of principle and interest.

Q: Installment credit is a loan that requires the borrower to make a series of equal payments over some fixed length of time.

Q: On average, finance companies have a capital-to-total-asset ratio that is ________ than that of banks and savings and loans. A) lower B) the same as C) higher D) None of the above are correct. Finance companies do not have a capital-to-total-asset ratio.

Q: Commercial paper is an important source of funding for finance companies. As presented in the Consolidated Finance Company Balance Sheet, commercial paper represents about ________ of their liabilities. A) 3.9% B) 5.8% C) 12.5% D) 20.0%

Q: As presented in the Consolidated Finance Company Balance Sheet, the largest asset of finance companies is consumer loans, representing ________ of assets. A) 10% B) 22% C) 25% D) 33%

Q: Although finance companies are largely unregulated, they do face some regulations aimed primarily at A) protecting unsophisticated customers. B) the government deposit insurance. C) large corporate customers. D) protecting the finance companies from failure.

Q: Sales finance companies make loans to consumers to purchase items A) on the Internet. B) from any retailer. C) from a particular retailer. D) for a specific use.

Q: Two growth areas for consumer finance companies are A) first mortgages and vacation financing. B) marine vessel loans and auto loans. C) home equity loans and educational loans. D) home equity loans and "private label" retail credit cards.

Q: Consumer finance companies typically make loans to consumers who A) prefer to avoid the regulatory environment at a bank. B) cannot obtain credit otherwise due to low income or poor credit. C) Both A and B of the above are correct. D) Neither A nor B of the above are correct.

Q: In which industry is a floor plan common practice? A) automobile B) tech services C) entertainment D) apparel

Q: Which of the following is not an advantage of a lease financing arrangement? A) Companies with losses can still depreciate equipment if leased from a finance company. B) Repossession is easier in a lease-finance arrangement because the finance company already owns the equipment. C) Finance companies are in a good position to sell a repossessed asset, especially if they are a subsidiary of the equipment manufacturer. D) The lessee often does not have to make as large of an upfront payment, relative to a straight loan.

Q: In which industry is factoring a common practice? A) automobile B) tech services C) entertainment D) apparel

Q: In factoring, a finance company makes a loan and A) purchases the firm's accounts receivables at a premium. B) purchases the firm's accounts payables at a premium. C) purchases the firm's accounts receivables at a discount. D) purchases the firm's accounts payables at a discount.

Q: In 2010, the largest portion of loans made by finance companies was ________, representing 43.3% of the loans. A) consumer loans B) factoring loans C) business loans D) real estate

Q: What are the three main types of finance companies? A) sales, lease, and buyback B) business, sales, and consumer C) factor, lease, and floor plan D) None of the above are correct.

Q: What is default risk? A) A problem that arises when a firm runs short of cash. B) The risk of asset prices rising too high. C) The chance that the borrower will fail to repay a loan. D) The risk associated with longer-term contracts.

Q: What is liquidity risk? A) A problem that arises when a firm runs short of cash. B) The risk of asset prices rising too high. C) The chance that the borrower will fail to repay a loan. D) The risk associated with longer-term contracts.

Q: How do consumer loans differ between those issued by finance companies and those issued by banks? A) Loans made by finance companies are often riskier than those issued by banks. B) Consumer finance companies are typically owned by the manufacturer whose products are being financed. C) Both A and B of the above are correct. D) None of the above are correct.

Q: Finance companies are ________ market intermediaries. A) stock B) bond C) FX D) money

Q: By the beginning of 2010, banks held $1,177 billion in consumer loans. Finance companies held about ________ of that figure. A) 40% B) 60% C) 90% D) 110%

Q: In the early 1900s, banks did not offer loans to purchase automobiles. This is because A) banks could not make a profit on car loans. B) only finance companies were permitted to offer car loans. C) banks could not repossess a car if the loan defaulted. D) banks did not view a car as a productive asset.

Q: A balloon loan requires A) multiple payments at odd, random intervals. B) periodic payments of principle and interest. C) a single large payment at the loan's maturity to retire the debt. D) a steadily increasing payment (floating balloon) to retire the debt.

Q: The earliest examples of finance companies date back to the beginning of the ________ when retailers offered installment credit to customers. A) 1800s B) 1900s C) 1950s D) 1980s