Q&A Hero

Q: Which of the following is an example of a negative easement appurtenant? A.A driveway easement across one parcel to another. B.Rights-of-way for roads. C.A common drive easement where owners of adjoining lots must permit each other to use a driveway lying on their shaped property line. D.A scenic easement used to restrict construction on adjacent parcels so as to preserve a valued view.

Q: Which of the following items would most likely be considered a fixture? A.Custom bookshelves B.Refrigerator in a single-family residence being sold C.Fence installed by the tenant of a rental property D.Antique chandelier

Q: The market for buying, selling, and leasing real estate can be characterized by all of the following EXCEPT: A.localized markets B.highly segmented markets C.privately negotiated contracts D.low transaction costs

Q: What proportion of U.S. households own their home? A.One-third B.One-half C.Two-thirds D.Three-fourths

Q: Large commercial properties valued well over $10 million are often referred to as: A.segmented property B.investment-grade property C.speculative-grade property D.immobile property

Q: Competition in the _________, where households and firms compete for the currently available supply of locations and space, determines the level of rental income for each submarket and property. A.user market B.capital market C.government D.local market

Q: In 2007, the housing market was widely viewed as: A.a resilient asset class that significantly softened the severity of the recession B.a surging market pushing prices and new construction to unprecedented levels C.the primary cause of a major economic downturn D.unrelated to the condition of the U.S. economy

Q: The demand for real estate derives from the need that participants in the user market have for shelter and convenient access to other locations. The primary participants in the user market include all of the following EXCEPT: A.owner occupants B.tenants C.renters D.pension fund managers

Q: As of December 2008, the market value of outstanding real estate mortgage debt was: A.greater than the market value of corporate equities B.less than the market value of U.S. Treasury securities C.less than the market value of corporate and foreign bonds D.greater than the market value of corporate, foreign, and U.S. Treasury debt securities combined

Q: The size of a single family residential lot is typically: A.less than one acre B.between one and two acres C.between two and three acres D.greater than three acres

Q: When the value of land is considered, it is important to distinguish between land and raw land. Raw land refers to a(n): A.building site B.structure on the land C.property's infrastructure D.area that does not include any improvements

Q: What is the expected return for a real estate investment fund with a Beta of 1.87, given a risk free rate of 2.7% and an expected return of 11.2% for the market? (A)a. 18.6%b. 11.2%c. 15.9%d. 2.7%

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: For real estate investment funds in which the manager has little control over the flow of cash into and out of the fund, the preferred performance measure is _________. a. NPV b. IRR c. TVM d. TWR

Q: A property was acquired for $950,000 and then produced cash flows of $100,000, $120,000, $135,000, $135,000, and $125,000 at the end of years one through five, respectively. The property was then sold for $1,200,000 at the end of the fifth year. What was the internal rate of return for this investment? a. 16.0% b. 16.5% c. 15.5% d. 12.8%

Q: _____ is the rate that causes the present value of all cash flows from a property (including its resale value) to be equal to the original purchase price of the property. a. IRR b. NPV c. TWR d. TVM

Q: When comparing investment returns at the fund level against those at the property level, the difference between them is referred to as ___________________. a. fund drag b. performance lag c. leverage drag d. administrative drag

Q: Fund flows that occur within a quarterly reporting period are referred to as _______________ cash flows. (B) a. inter-period b. intra-period c. regular d. irregular

Q: If a fund manager has the opportunity to receive a fee as an added incentive to enhance the performance of the fund, the amount of the fee may be based on the extent to which the performance of the fund exceeds an agreed upon hurdle rate of return. Such a fee is referred to as a: a. Bonus b. Hurdle fee c. Fiduciary fee d. Promote

Q: Given the following fee structure, what is the total amount of fees that would be paid to a fund manager if the actual NOI was $45 million annually: 5.5% up to $20 million in annual NOI 5.0% for the next $35 million in annual NOI 4.5% for the next $45 million in annual NOI 4.0% for all over $45 million in annual NOI A. $2.3 million B. $1.1 million C. $2.0 million D. $1.8 million

Q: Which of the following is NOT a type of fee commonly charged by a real estate investment fund manager: a. acquisition fees b. disposition fees c. commitment fees d. performance fees

Q: During the period before a fund manager begins to physically purchase properties, investors are typically asked to make capital _______________. a. calls b. commitments c. contributions d. assurances

Q: Fund managers generally include a ___________ policy in the fund documents specifying conditions under which investors may exit the fund. a. recovery b. recuperative c. reclamation d. redemption

Q: Investors may be concerned if a fund manager deviates from the stated investment strategy by purchasing properties that do not fall within the parameters of the stated objectives of the firm. This practice is referred to as: a. Overage b. Plan Deviation c. Style drift d. Eccentricity

Q: A core strategy typically uses the type of fund structure under which new investors may be admitted after the initial offering and after the commencement of fund operations. These funds are referred to as: a. closed-end fund b. finite fund c. liquidation fund d. open-end fund

Q: Which type of fund structure would investment managersbelikely to use in order to raise a specific amount of capital over a specific period of time? a. open-end fund b. closed-end fund c. finite fund d. liquidation fund

Q: A _____________ fund structure is commonly used by managers of very large, open-end funds that are expected to hold a substantial number of properties in various locations. a. commingled b. separate c. conjoined d. adjacent

Q: ___________ funds take on risks by conducting ground up development projects that expose the funds to additional construction risks, such as entitlements, construction delays, cost overruns, complex JV management issues, and so on, and use a relatively high degree of financial leverage. a. Core b. Opportunity c. Value-add d. Core Plus

Q: Which of the following is NOT one of the typical categories of real estate investment funds? a. Core funds b. Value-added funds; c. Growth funds d. Opportunity funds

Q: Which of the following documents is used to inform real estate fund investors of the discretion that managers may exercise related to the acquisition, management, and sale of properties in the fund? A) fund agreement B) prospectus C) due diligence record D) deed of trust

Q: Large, private funds are typically created by real estate investment managers who develop an investment strategy involving which of the following: (1) the types of properties to be acquired and markets where acquisitions will be made, (2) how the fund will be operated, (3) when properties are to be sold, and (4) how the fund strategy will align with the real estate investment requirements of investors. A) 1, 2, 3 B) 1, 2, 4 C) 2, 3, 4 D) All of the above

Q: Investors may use attribution analysis to examine why the performance of an actively managed real estate investment fund has exceeded its benchmark return.

Q: Unrealized returns are important to investors in assessing the performance of their investments and of their fund manager(s).

Q: When reporting on a real estate investment fund, a manager may treatthe financial information as an estimate of performance based on the assumption that all of the underlying properties could be sold at their appraised value.

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: Compared to stock and bond funds, real estate investment funds are typically much easier to value due to the availability of real estate appraisals.

Q: The investment strategy of a fund may exclude certain markets, submarkets, and/or property categories from the fund manager's investment options.

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: Opportunity funds are designed for long-term investment and, accordingly, will generally maintain ownership of acquired properties for several years.

Q: In a well-diversified investment portfolio, the allocation of real estate investments should not exceed five percent.

Q: Investments that are held "in trust" on behalf of a pension plan's beneficiaries cause the fiduciary duties and responsibilities of pension plan sponsors to "carry over" to managers of these real estate investment funds.

Q: One would see the greatest amount of diversification from two securities that are: (A) Positively correlated (B) Negatively correlated (C) Not correlated (D) Perfectly correlated

Q: The variability on an asset's returns represents: (A) Flexibility (B) Profitability (C) Risk (D) Default

Q: The unit of measure that is used by portfolio managers to measure returns for individual securities on a periodic basis is the: (A) Return on investment (ROI) (B) Holding period return (HPR) (C) Geometric mean return (D) Arithmetic mean return

Q: The optimal combination of securities that provides the greatest amount of return for each level of risk is know as: (A) The expected frontier (B) The economic frontier (C) The efficient frontier (D) None of the above

Q: Assume a portfolio is comprised of two securities, A and B, whose standard deviations are 0.0412 and 0.0721, respectively. If their covariance is 0.002, what is their coefficient of correlation? (A) 0.005 (B) 0.115 (C) 0.673 (D) 1.485

Q: If the returns of two securities are compared over time and there appears to be no relationship between their movements, what is the likely value of their coefficient of correlation? (A) +1 (B) -1 (C) 0 (D) +∞ (infinity)

Q: Which of the following provides a measure of the extent to which returns tend to move together or have no relationships? (A) The coefficient of determination (B) The variance (C) The coefficient of variation (D) The covariance

Q: The coefficient of variation of the returns, also known as the risk-to-reward ratio, is defined as: (A) The standard deviation of returns divided by the mean return (B) The variance of return multiplied by the mean return (C) The variance of returns divided by the standard deviation of returns (D) None of the above

Q: Regarding real estate investments, risk that is associated with the type of property and its location, design, lease structure, and so on can be thought of as: (A) Marketability risk (B) Liquidity risk (C) Business risk (D) Interest rate risk

Q: Geometric mean returns are: (A) Simple averages of holding period returns (B) Expressed as compound rates of interest (C) More applicable when no specific time interval is considered to be any more important than another (D) Widely used in statistical studies spanning very long period of time

Q: On January 1st, an investor purchases security A for $105. Over the next four months, dividends totaling $15 were paid on security A. On March 31st, security A was sold for $120. What is the holding period return for security A? (A) 0.0% (B) 14.3% (C) 25.0% (D) 28.5%

Q: The FRC Property Index can be characterized by each of the following EXCEPT: (A) The index includes only properties with no outstanding mortgage debt (B) The information used in compiling the index is voluntarily contributed by property owners (C) The index reflects payments to both property managers and portfolio asset managers (D) All of the above are true

Q: As mentioned in the text, the data sources used to produce investment returns on real estate include the: (A) National Association of Real Estate Professionals (NAREP) (B) National Association of Real Estate Investment Trusts (NAREIT) (C) National Board of Realtors (NBR) (D) All of the above

Q: Including REITs in a portfolio containing S&P 500 securities produces diversification benefits. Why?(a) Real estate investment returns are highly correlated with returns for stocks(b) Real estate investment returns are not highly correlated with returns for stocks(c) Real estate investment returns are not subject to federal income taxes(d) Real estate investment returns do not change much from year to year

Q: What statistical concept do many portfolio managers use to represent risk when considering investment performance? (a) The standard deviation of returns (b) The difference, or "spread," between the highest value over the holding period and the lowest value over the holding period (c) The geometric mean return (d) The coefficient of variation

Q: Using the information provided in the previous question, what is the geometric mean return on the investment? (a) -2.6% (b) +2.6% (c) +5.0% (d) +8.0% (e) Cannot be calculated from the information provided

Q: Consider an investment held over three years with a return of +20percent in the first year, "‘25percent in the second year, and +20percent in the third year. What is the arithmetic mean return on the investment? (a) -2.6% (b) +2.6% (c) +5.0% (d) +8.0% (e) Cannot be calculated from the information provided

Q: In comparison to portfolios comprised entirely of corporate stocks and bonds, investment portfolios which include some form of real estate investment (as indicated by EREIT and FRC returns in the text) tend to offer lower levels of risk for equivalent returns.

Q: If two securities have the same positive mean returns and they are perfectly, negatively correlated, an investor in such securities will earn a positive return with zero risk.

Q: As long as the coefficient of correlation between two stocks is less than +1, some reduction in risk can be obtained by combining the securities.

Q: The optimal portfolio is obtained by combining a group of securities which, by themselves, offer the highest returns with the lowest risk.

Q: When comparing investment alternatives, the standard deviation is deemed to be a measure of risk.

Q: When used to evaluate the performance of an investment, the geometric mean is considered to be superior to the arithmetic mean.

Q: An investor in a mortgage REIT is basically buying equity shares of an entity whose assets are mainly mortgages.

Q: Both levered and unlevered properties are included in the FRC Property Index.

Q: The FRC Property Index includes property value increases or decreases only when properties are sold since the sale price is the only true measure of market value.

Q: Much like the securities markets, there is a large, centralized collection of real estate transactions and operating income data.

Q: The NCREIF index measures the investment performance of real estate by using actual sale prices.

Q: It is difficult to compare the investment performance of real estate with stocks and bonds because when properties do sell, the sale price is generally not publicly available.

Q: The early growth of the REIT industry in the 1970s was mainly attributed to which of the following? (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

Q: Recovery of capital (ROC) results in: (A) An increase in the dividend available to the investor (B) An increase in the value of the stock (C) A reduction in the cost basis of acquired stock (D) A reduction in losses on the stock

Q: REIT dividends are considered ________ income and thus do not qualify as passive income to offset passive losses. (A) Portfolio (B) Operating (C) Trading (D) Outside professional

Q: The difference between EPS (earnings per share) and FFO (funds from operations) is: (A) Irrelevant (B) Determined by growth of the company (C) Due to depreciation and amortization (D) Due to the number of shares outstanding

Q: Once an entity has been terminated as a REIT, the entity cannot make a new election to be taxed as a REIT until __ years after the termination. (A) 2 (B) 3 (C) 4 (D) 5

Q: The funds from operations (FFO) for a REIT is roughly equal to: (A) NOI less interest deductions (B) Earnings before tax plus depreciation deductions (C) NOI plus interest deductions (D) Earnings per share plus capital gains

Q: Which of the following is likely to occur upon the sale of a REIT-owned property? (A) If a capital gain is realized, the REIT can retain the gain for future investment and be taxed at the appropriate corporate capital gains tax rate (B) If a capital gain is realized, the REIT can retain the gain for future investment and be taxed at the shareholder's capital gains tax rate (C) If a capital gain is realized, the REIT can distribute the gain as a dividend to shareholders who will realize it as dividend income for individual tax reporting purposes (D) If a capital loss is realized, the loss can be passed through to individual investors

Q: Which of the following REIT types is NOT likely to own real property? (A) Hybrid REIT (B) Mortgage REIT (C) Equity REIT (D) All of the above

Q: Which of the following REIT types is organized to acquire the specific property or properties described in its prospectus? (A) A property trust (B) A mixed trust (C) A purchasing trust (D) An exchange trust

Q: Which of the following is NOT a requirement of REITs? (A) A REIT must have at least 100 stockholders (B) Not more than 50% of a REIT's shares can be owned by five or fewer shareholders (C) At least 90% of a REIT's income must be distributed to shareholders (D) All of the above are REIT requirements