Questions and Answers of Real Estate Finance and Investment

How may the use of leases shift the risk of rising operating expenses from the lessor to the lessee?
What are some of the types of risk that should be considered when analyzing real estate?
A presale agreement is said to be equivalent to take-out funding that may be used to repay the construction loan. What will the construction lender be concerned about if the developer plans to use
Excel. Refer to the “Ch19 MPS” tab in the Excel Workbook provided on the website.a. Find the value of the cash flows to the issuer and to individual investors based on a required rate of return
What does “nonrecourse” financing mean?
What general rule can be developed concerning maximum values and compounding intervals within a year?
What are loan closing costs? How can they be categorized?
Why do lenders charge origination fees and loan discount fees?
What is the accrual rate and payment rate on a mortgage loan? What happens when the two are equal? What happens when the accrual rate exceeds the payment rate? What if the payment rate exceeds the
Regarding Problem 3, how much total interest and principal would be paid over the entire 30-year life of the mortgage in each case? Which payment pattern would have the greatest total amount of
A partially amortizing loan for $90,000 for 10 years is made at 6 percent interest. The lender and borrower agree that payments will be monthly and that a balance of $20,000 will remain and be repaid
Assuming 2 points are charged by the lender, what will be the yield if the loan is repaid at the end of year 10? What must the loan balance be if it is repaid after year 4? What will be the yield to
Our borrower, John, in problem 13 wants to “roll in” or finance the loan fee of $3,500 into the loan amount which would make the loan $87,500. Answer parts (a) through (d) from problem 13
A commercial real estate investment fund must report its quarterly investment performance to investors. A summary of its(1) beginning and end-of-quarter assets and equity(2) cash inflows and outflows
Refer to the "Ch14 MRR" tab in the Excel Workbook provided on the website. Please note that in order to change the NOI and property value growth rate, you must change them on the "Ch14 Return if
You are still an employee of University Consultants, Ltd. The investor tells you she would also like to know how tax considerations affect your investment analysis.You determine that the building
You are an employee of University Consultants, Ltd., and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a
How may supply and demand affect a property’s projected NOI?
Use the Ch10_Apartment tab in the Excel Workbook provided on the website. Suppose that investors required only a 9 percent rate of return (discount rate) instead of 11 percent and the terminal cap
Spreadsheet Problem. Rent tab in the Excel workbook provided on the website.a. Suppose expenses increase by $2 per square foot each year instead of $1. Does this change which lease alternative has
Our borrower, John, in problem 13 wants to “roll in” or finance the loan fee of $3,500 into the loan amount which would make the loan $87,500. Answer parts (a) through (d) from problem 13
A lender is considering what terms to allow on a loan. Current market terms are 9 percent interest for 25 years for a fully amortizing loan. The borrower, Rich, has requested a loan of $100,000. The
An owner of the Atrium Tower Office Building is currently negotiating a five-year lease with ACME Consolidated Corp. for 20,000 rentable square feet of office space. ACME would like a base rent of
On August 20, Mr. and Mrs. Cleaver decided to buy a property from Mr. and Mrs. Ward for $105,000. On August 30, Mr. and Mrs. Cleaver obtained a loan commitment from OKAY National Bank for an $84,000
A potential home buyer is wondering about her credit card accounts and the effect that they may have on her credit score which will be evaluated when she applies for a mortgage loan. At present, she
A fully amortizing CAM loan is made for $125,000 at 6 percent interest for 20 years.a. What will be the payments and balances for the first six months?b. What would payments be for a CPM loan?c. If
A borrower and a lender agree on a $200,000 loan at 5 percent interest. An amortization schedule of 25 years has been agreed on; however, the lender has the option to “call” the loan after five
What is the accrual rate and payment rate on a mortgage loan? What happens when the two are equal?
What are the major differences between the CAM, and CPM loans? What are the advantages to borrowers and risks to lenders for each? What elements do each of the loans have in common?
A borrower obtains a fully amortizing CPM loan for $125,000 at 6 percent interest for 10 years. What will be the monthly payment on the loan? If this loan had a maturity of 30 years, what would be
A loan of $60,000 is due 10 years from today. The borrower wants to make annual payments at the end of each year into a sinking fund that will earn compound interest at an annual rate of 10
What does non-recourse financing mean?
Name the three general methods of title assurance and briefly describe each. Which would you recommend to a friend purchasing real estate? Why?
What is meant by an estate?
What is the difference between real property and personal property?
What is an estoppels? Why is it used?
What is the relationship between a discount rate (or IRR) and a capitalization rate? What causes differences between them?
What are some of the motivations for investing in real estate income property?
What is the equity dividend rate?
What are depreciation allowances? What is meant by a tax shelter?
An investor would like to purchase a new office property for $2.2 million. However, she faces the decision of whether to use 70 percent or 80 percent financing. The 70 percent loan can be obtained at
You are advising a group of investors who are considering the purchase of a shopping center complex. They would like to finance 75 percent of the purchase price. A loan has been offered to them on
A developer wants to finance a project costing $1.5 million with a 70 percent, 20-year loan at an interest rate of 4.5 percent. The project's NOI is expected to be $100,000 during year 1 and the NOI,
Ace Development Company is trying to structure a loan with the First National Bank. Ace would like to purchase a property for $3.25 million. The property is projected to produce a first year NOI of
An institutional lender is willing to make a loan for $1 million on an office building at a 6 percent interest (accrual) rate with payments calculated using an 4 percent pay rate and a 30-year loan
A property is expected to have NOI of $100,000 the first year. The NOI is expected to increase by 5 percent per year thereafter. The appraised value of the property is currently $1.25 million and the
Refer to Problem 6. Assume that another alternative is a convertible mortgage (instead of a participation loan) that gives the lender the option to convert the mortgage balance into a 60 percent
Refer to Problem 1. Suppose that five years ago the corporation had decided to own rather than lease the real estate. Assume that it is now five years later and management is considering a sale-
The CEO of Kuehner Development Co. has just come from a meeting with his marketing staff where he was given the latest market study of a proposed new shopping center, Parker Road Plaza. The study
Refer to Problem 1. ABC realizes that the benefits of leasing versus owning may be sensitive to many of the assumptions being made. The management wants to know how the return on the incremental cash
What are two common development strategies that many developers use?
As a financial advisor for the Spain Development Co., you have been given the construction and marketing studies for the proposed Timbercreek office project. Several potential sites have been
What contingencies are commonly found in loan commitments? Why are they used? What happens if they are not met by the developer?
How do you think that Federal Income Tax Policy affects the desirability of investing in real estate partnerships?
The Green Mortgage Company has originated a pool containing 75 ten-year fixed interest rate mortgages with an average balance of $100,000 each. All mortgages in the pool carry a coupon of 12 percent.
What are the general requirements regarding income, investments, and dividends with which a REIT must comply to maintain its qualification to be taxed as a REIT?
What are the two principal types of REITs?
List and characterize equity REITs based on their property types.
Results reported in the chapter show that by including real estate in a portfolio containing stocks and corporate bonds, diversification benefits result. Why is this true? Do those benefits come
What is the difference between systematic and unsystematic risk? Which one can be eliminated through diversification? Which one is measured by beta?
What are the primary differences between an open-end and closed-end fund? Why would an investor choose to invest in one or the other?
What is the difference between a time-weighted return and an internal rate of return? When reporting historical investment performance to investors in a core fund, which return would be more likely
An investor is evaluating the historical performance of an investment fund. The following annual returns are provided to the investor:a. Calculate the investment returns for each year.b. Compute the
You have been asked to evaluate returns from your commercial real estate investment fund (Bluestone Fund) against an industry benchmark index to determine how successful your active investment
Which type of fund, core or opportunistic, would you expect to have higher returns? Why? Which would be expected to have greater volatility in returns? Why?
When comparing investment funds, what is the difference between committed capital and invested capital? Why may this matter for investors?
The following data is reported for a fund and an appropriate benchmark as well as the risk-free rate each year:a. What is the Sharpe ratio for the fund and the benchmark?b. What is the beta for the
When evaluating fund performance, what is meant by “style drift”? How might style drift impact investment returns and volatility?
A borrower and lender negotiate a $20,000,000 interest-only loan at a 5 percent interest rate for a term of 15 years. There is a lockout period of 10 years. Should the borrower choose to prepay this
Suppose that the participation was reduced to 25 percent of the NOI in excess of $70,000 but increased to 75 percent of the gain in value.a. What is the investor’s before- and after-tax IRR?b. What
How does the use of Monte Carlo Simulation differ from using scenarios?
Lonnie Carson purchased Royal Oaks Apartments two years ago. An opportunity has arisen for Carson to purchase a larger apartment project called Royal Palms, but Carson believes that he would have to
Richard Rambo presently owns the Marine Tower office building, which is 20 years old, and is considering renovating it. He purchased the property two years ago for $800,000 and financed it with a
An investor is considering selling a property that has an adjusted basis of $1.5 million for $2 million. The property has a loan balance of $1.75 million. She is exploring different disposition