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real estate principles
Real Estate Finance and Investments 14th edition William Brueggeman, Jeffrey Fisher - Solutions
A retail lease for 10,000 square feet of rentable space is being negotiated for a five-year term. Option A calls for a base rent of $25 per square foot for the coming year with step-ups of $1 per year each year thereafter. CAM charges are expected to be $3 for the coming year and are forecasted to
What is meant by "loss to lease"?
What is an estoppel? Why is it used?
What are(a) Pass through expenses,(b) Recoverable expenses,(c) Common area expenses?Give examples of each.
You are trying to estimate the value of a property that you are interested in buying. The subject property is located at 322 Rock Creek Road in a new suburb of a large metropolitan area. The property is like many others in the area, with three bedrooms, two baths, a living room, a den, a large
You are considering an option to purchase or rent a single residential property. You can rent it for $2,000 per month and the owner would be responsible for maintenance, property insurance, and property taxes. Alternatively, you can purchase this property for $200,000 and finance it with an 80
What are the capital gains rules as applied to residential property owners?
An appraiser is looking for comparable sales and finds a property that recently sold for $200,000. She finds that the buyer was able to assume the seller’s fully amortizing mortgage which had monthly payments based on a 7 percent interest rate. The balance of the loan at the time of sale was
A borrower is making a choice between a mortgage with monthly payments or biweekly payments. The loan will be $200,000 at 6 percent interest for 20 years.a. How would you analyze these alternatives?b. What if the biweekly loan was available for 5.75 percent? How would your answer change?
Is the incremental cost of borrowing additional funds affected significantly by early repayment of the loan?
Why is the income approach to value often difficult to use on a single family residential appraisal?
What are the differences between the cost and sales comparison approaches to appraising property?
You are considering the purchase of a property today for $300,000. You plan to finance it with an 80 percent loan. The appreciation rate on the property value is expected to be 4 percent annually for the next three years.a. Approximate the expected annual average rate of appreciation on home equity
An investor is considering the acquisition of a “distressed property’’ which is on Northlake Bank’s REO list. The property is available for $200,000 and the investor estimates that he can borrow $160,000 at 8 percent interest and that the property will require the following total
List four important drivers of housing demand and price appreciation.
What are public goods? How may they be reflected in house prices?
You have an opportunity to acquire a property from First Capital Bank. The bank recently obtained the property from a borrower who defaulted on his loan. First Capital is offering the property for $200,000. If you buy the property, you believe that you will have to spend(1) $10,500 on various
When considering an investment in “distressed” properties, what are the most important areas of research that should be considered?
Determine the after-tax IRR for owning versus renting in each of the five years with the following changes in the original assumptions in the spreadsheet:a. The homeowner has a 15 percent marginal tax rate instead of 28 percent.b. Rents and property values will not increase over the five years.c.
What is the legislative intent of federal truth-in-lending disclosures, and what specific disclosures are required under the act?
What are CAM charges?
When would the cost of credit life insurance be included in the finance charge of an APR calculations for the truth-in-lending disclosures?
You are a new loan officer with Alpha Mortgage, and the manager of the loan department has just presented a problem to you. He is unable to complete the APR calculation on an adjustable rate mortgage which a borrower applied for yesterday. The loan features initial payments based on a 10 percent
A loan with the following terms is being made:Fixed rate, constant monthly payment. Closing date February 9th.9% interest rate. Prepaid interest due at closing.$70,000 mortgage loan amount.$1,500 loan discount points to be paid by the buyer/borrower to the lender.25-year term, monthly payments,
What assumptions about future composite rate of interest on an adjustable rate mortgage is made when determining the APR for federal truth-in-lending disclosures?
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 conventional loan at 10 percent for 30 years. The lender informs Mr. and Mrs. Cleaver that a $2,100
List the closing cost items, which require RESPA disclosure. What items may be excluded from disclosures under the act? What form can these disclosures take?
What types of fees and conditions are prohibited under RESPA?
For what items may a lender require escrow accounts from a borrower?
How does the use of leases shift the risk from lessor to the lessee?
A building owner is evaluating the following alternatives for leasing space in an office building for the next five years:Net lease with steps. Rent will be $15 per square foot the first year and will increase by $1.50 per square foot each year until the end of the lease. All operating expenses
As CFO for Everything.Com, you are shopping for 5,000 square feet of usable office space for 25 of your employees in Center City, USA. A leasing broker shows you space in Apex Atrium, a 10-story multi tenanted office building. This building contains 300,000 square feet of gross building area. A
What is the difference between base rents and effective rents?
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 space. ACME would like a base rent of $20 per square foot with step-ups of $1 per year beginning one year from now. Atrium would provide full
What is meant by usable vs. rentable space?
CAM charges for retail leases in a shopping mall must be calculated. The retail mall consists of a total area of 2.8 million square feet, of which 800,000 square feet has been leased to anchor tenants that have agreed to pay $2 per rentable square foot in CAM charges. In-line tenants occupy 1.3
Small City currently has 1 million square feet of office space, of which 900,000 square feet is occupied by 3,000 employees who are mainly involved in professional services such as finance, insurance, and real estate. Small City’s economy has been fairly strong in recent years, but due to the
What are the similarities and differences between an overall rate and an equity dividend rate?
What is the significance of a debt coverage ratio?
What is meant by tax shelter?
How is the gain from the sale of real estate taxed?
What is meant by an effective tax rate? What does it measure?
What is the significance of the passive activity loss limitation (PALL) rules for real estate investors?
What is financial leverage? Why is a one-year measure of return on investment inadequate in determining whether positive or negative financial leverage exists?
What is positive and negative financial leverage? How are returns or losses magnified as the degree of leverage increases? How does leverage on a before-tax basis differ from leverage on an after-tax basis?
A developer wants to finance a project costing $1.5 million with a 70 percent, 25-year loan at an interest rate of 8 percent. The project’s NOI is expected to be $120,000 during year 1 and the NOI, as well as its value, is expected to increase at an annual rate of 3 percent thereafter. The lender
In what way does leverage increase the riskiness of a loan?
An institutional lender is willing to make a loan for $1 million on an office building at a 10 percent interest (accrual) rate with payments calculated using an 8 percent pay rate and a 30-year loan term. (That is, payments are calculated as if the interest rate were 8 percent with monthly payments
Do you think renovation is more or less risky than a new investment?
The Green S & L 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. (For simplicity, assume all mortgage payments are made annually at 12 percent interest.) Green would now like
Name two ways that FNMA currently finances its secondary mortgage operations.
When did GNMA come into existence? What was its original function? What is its main function now?
Why was the formation of FHLMC so important?
What is a mortgage-related security? What are the similarities and differences between mortgage securities and corporate bonds?
Name the principal types of mortgage-related securities. What are the difference between them?
There are several ways that mortgages can be sold in the secondary market. Choose two and compare and contrast their length of distribution channel, relative ease of transaction, and efficiency as it relates to maximizing funds flow from sale.
What is the function of the optional delivery commitment?
What is a mortgage swap certificate?
Name five important characteristics of mortgage pools. Tell why each is important.
In general, would a falling rate of market interest cause the price of an MPT security to increase or decrease? Would the increase or decrease be greater if the security was issued at a discount? Would an increase in prepayment be likely or unlikely? Describe with an example.
What is a mortgage pay-through bond (MPTB)? How does it resemble a mortgage-backed bond (MBB)? How does it differ?
The MZ Mortgage Company is issuing a CMO with three tranches. The A tranche will consist of $40.5 million with a coupon of 8.25 percent. The B tranche will be issued with a coupon of 9.0 percent and a principal of $22.5 million. The Z tranche will carry a coupon of 10.0 percent with a principal of
The Provincial Insurance Company has the choice of investing $100,000 in either a mortgage bond with annual payments based on a 10-year amortization schedule with a maturity of five years at 10 percent or a 5-year corporate bond with annual interest payments and a final principal payment also
Are the overcollateralization requirements the same for mortgage pay-through bonds as for the mortgage-backed bonds?
Name two different ways that MPTBs can be overcollateralized.
What is a CMO? Explain why a CMO has been called as much of a marketing innovation as a financial innovation.
What is the return on the residual class for prepayment rates of 15 percent, 20 percent, 25 percent, and 30 percent?
Assume that $15,000,000 in floaters and $5,000,000 in inverse floaters are issued. How does this change the returns for the inverse floater when LIBOR is 2 percent, 4 percent, and 6 percent?
Name the four major classes of mortgage-related securities. As an issuer, explain the reasons for choosing one type over another.
What is the return on the IO and PO at prepayment rates of 25 percent and 30 percent?
What is the major difference between a CMO and the other types of mortgage-related securities?
Suppose there is default at maturity and the property sells for 90 percent of the loan balance. What are the returns to the subordinate tranche and residual?
Why are CMOs overcollateralized?
What is the purpose of the accrual tranche? Could a CMO exist without a Z class? What would be the difference between the CMO with and without the accrual class?
Which tranches in a CMO issue are least subject to price variances related to changes in market interest rates? Why?
What is the primary distinction between mortgage-related securities backed by residential mortgages and those backed by commercial mortgages?
What is a “floater”/”inverse-floater” tranche in a CMO offering?
What is the role of the “scaler” in structuring an (F) and (IF) structure?
Why would anyone want to purchase an (F) or (IF) derivative type of investment?
What are (IO) and (PO) strips? Which tends to be more volatile in price? Why?
In what ways is a CMBS structure different from a CMO backed by residential mortgages? Why is default risk in a CMBS offering given more attention?
How do CDOs differ from CMBS?
How can derivative security be used to hedge portfolio risk?
What are the risks of global investment?
Why should an investor consider investing globally?
Results presented in the chapter are based on historical data. Of what use are these results to a portfolio manager who may be making an investment decision today? Elaborate.
Results reported in the chapter showed that by including either REITs or the NCREIF Index in a portfolio containing S&P 500 securities, corporate bonds, and T bills, diversification benefits resulted. Why was this true? Did those benefits come about for the same reason for each category of real
What is the difference between covariance and correlation? Why are these concepts so important in portfolio analysis?
Mean returns for portfolios are calculated by taking the weighted average of the mean returns for each investment in the portfolio. Why won’t this approach work to calculate the standard deviation of portfolio returns?
When NCREIF returns and REIT returns are compared, NCREIF returns exhibit a much lower pattern of variation. Why might this be the case?
What statistical concept do many portfolio managers use to represent risk when considering investment performance?
What is the difference between arithmetic and geometric mean returns?
Suppose the correlation between NCREIF and the S&P 500 is -20 percent. How does this change the standard deviation of the portfolio when 50 percent of the portfolio is allocated to each investment?
What are the distinguishing characteristics between REIT data and the NCREIF Property Index?
As an investment advisor for MREAF (Momentum Real Estate Advisory Fund), you are about to make a presentation to the portfolio manager of the ET&T pension fund. You would like to show what would have happened had ET&T made an investment in MREAF during the last 13 quarters. The ET&T
What are some of the difficulties of obtaining data to measure real estate investment performance?
What is a mortgage REIT?
What are some important lease provisions of which investors should be aware when analyzing the financial statements of REITs?
What is the difference between earnings per share (EPS), funds from operation (FFO), and dividends per share?
Atlantis REIT expects an income of $8.00 per share. This includes a deduction of $2.00 per share for depreciation. Atlantis did not have any gains from the sale of real estate. Its properties are mainly apartments, and you believe that apartments are currently selling on average at about an 8
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