REAL 5090 Test 2 With Complete Solutions
What is the difference between NOI and PBTCF? - ANSWER capital improvement
expenditures and leasing commissions
in the 2006 peak, why were cap rates so low? - ANSWER because prices were
too high
if the loan to value ratio is 80% what is the leverage ratio? - ANSWER 5
T/F: income growth in commercial real estate does not meet, let alone exceed,
inflation - ANSWER TRUE
what is wrong with the following statement?
Only a fool would invest in real estate without financing most of the purchase
with a mortgage; borrowing allows the investor to increase their expected
return by using other people's money. - ANSWER it ignores the effect of
borrowing on investors' risk
why do transaction prices deviate a lot from expected market values? - ANSWER
a buyer's investment value can be higher than the market value, increasing the
transaction price
free cash flows that a property generates are ____________ of the price you pay
for a property - ANSWER independent
which of the following investments is best assuming a 1 year holding period and
a 9% discount rate?
1. 20M investment that earns 11% for the year
2. 7M investment that earns 14% for the year - ANSWER 1. because it has a
higher NPV
T/F: zero NPV projects are okay and are actually expected - ANSWER TRUE
because usually buyers and sellers end up converging to the same market value
what is an example of Capex? - ANSWER - tenant improvements
- leasing commissions
- replacement of major appliances/utilities (ex: HVAC system)
- new landscaping
- replacing the roof
What is the difference between NOI and PBTCF? - ANSWER capital improvement
expenditures and leasing commissions
in the 2006 peak, why were cap rates so low? - ANSWER because prices were
too high
if the loan to value ratio is 80% what is the leverage ratio? - ANSWER 5
T/F: income growth in commercial real estate does not meet, let alone exceed,
inflation - ANSWER TRUE
what is wrong with the following statement?
Only a fool would invest in real estate without financing most of the purchase
with a mortgage; borrowing allows the investor to increase their expected
return by using other people's money. - ANSWER it ignores the effect of
borrowing on investors' risk
why do transaction prices deviate a lot from expected market values? - ANSWER
a buyer's investment value can be higher than the market value, increasing the
transaction price
free cash flows that a property generates are ____________ of the price you pay
for a property - ANSWER independent
which of the following investments is best assuming a 1 year holding period and
a 9% discount rate?
1. 20M investment that earns 11% for the year
2. 7M investment that earns 14% for the year - ANSWER 1. because it has a
higher NPV
T/F: zero NPV projects are okay and are actually expected - ANSWER TRUE
because usually buyers and sellers end up converging to the same market value
what is an example of Capex? - ANSWER - tenant improvements
- leasing commissions
- replacement of major appliances/utilities (ex: HVAC system)
- new landscaping
- replacing the roof
