In class we talked about the inverse relationship between cap rates and values. The lower the cap rate, the higher the value. Assume a real estate company pursues a develop-to-sell strategy. This is to say that the company acquires land, develops a building on it, and then leases it up so that its un-leveraged yield on cost is 7%. At the time of sale, at what disposition cap rate will it make the most money?

		8%
		7%
		6%
		5%

During class, we looked at a property where the existing rent roll had in place rents that were substantially below market levels. We talked about using lease buy outs to create value in a property, and watched a video where an owner talked about a real lease buy out example in one of his buildings. For this problem, put yourself in the shoes of a landlord. You have a 2 bedroom unit in your building with a tenant that pays $3,100/month. The market rent for that unit is $7,000/month. Assume a prevailing cap rate is 4%. The unit has not been renovated and it requires $250,000 in improvements before you can lease it up at market standards. You are trying to figure out how much to offer the tenant to buy out his lease. What is your break even lease buy out amount? In other words, what is the amount where after the lease buy out payment and the costs of apt. improvements, the net value created is zero?

		$800K
		$920K
		$500K
		$1M

A single tenant property measures 200,000 SF. It has a tenant paying an in-place rent of $70/SF/Yr and operating expenses of $40/SF/Yr. The lease is month-to-month. Based on market levels, the rent should be $67/SF/Yr. The property is up for sale and the prevailing cap rate for this type of property is 5.5%. By how much would a buyer over pay if they purchased the property based on the in-place rent?

		$5.9M
		$19M
		$10.9M
		$8.8M