True/False Type (10 points total)

1. Answer the below questions with True / False

1. A low Debt Service Coverage Ratio (DSCR) is the best predictor of a default during the loan term (T/F)

1. A commercial mortgage has lower prepayment risk compared to a residential mortgage (T/F)

1. PE vehicles provide lower volatility and more liquidity versus public equity real estate vehicles. (T/F)

1. In an A/B note structure, the B-note is typically included in the CMBS loan collateral pool. (T/F)

1. In 2010 and 2011, public REITs were active net sellers of real estate while private equity funds were active buyers. (T/F)

1. There is a strong relationship between the first and second mortgage. (T/F)

1. Preferred equity is not a loan agreement and carries a maturity that matches that of first and second mortgages. (T/F)

Multiple Choice Types (30 points total)

1. Which of the following is NOT a requirement for being a REIT?
2. REITS must not have fewer than 5 shareholders hold more than 50% of the shares
3. More than 75% of the income must be derived directly or indirectly from property
4. More than 90% of net income must be distributed to shareholders as dividends
5. REITS cannot sell buildings unless they have held them for at least 10 years (prohibited transactions)
6. None of the above

1. Which of the following statements is TRUE
2. REITs have outperformed a stock index like the S&P500 over long periods of time
3. REITS have lower volatility than a stock index like the S&P500 over long periods of time
4. REITS behave like small value stocks
5. None of the above
6. Answers a and c

1. What best describes AFFO of a REIT?
2. It is rent revenue minus operating expenses, minus interest expenses, minus depreciation, plus the gains on sale of property
3. It is rent revenue minus operating expenses, minus interest expenses
4. It is rent revenue minus operating expenses, minus interest expenses minus recurring capex minus current expenditures on tenant improvements & lease concessions
5. It is the franchise value of the REIT, the premium over NAV.
6. It is normalized cash flow from operations minus interest expenses minus recurring capex minus current expenditures on tenant improvements & lease concessions

1. The document that governs the relationship between a mezzanine lender and a senior secured lender isthe
   1. Buy-sellAgreement
   2. IntercreditorAgreement
   3. ParticipationAgreement
   4. Pooling and ServicingAgreement

1. The document that governs the relationship between the A-Note holder and theB-Note holder isthe

1. Buy-SellAgreement
2. IntercreditorAgreement
3. Participation or Co-lenderAgreement
4. RepurchaseAgreement

1. The primary reason that borrowers were attracted to CMBS financingis

1. The tax-exempt status ofREMICs
2. The high level of responsiveness to borrowers' needs by masterservicers.
3. Low interest rates & sometimes higher loanproceeds
4. All of theabove
5. Lenders that do not securitize the mortgage loans they originate but retain the loans ontheir books are referred toas
   1. Mortgagebankers
   2. Portfoliolenders
   3. Collateralmanagers
   4. AAAinvestors

1. Before the financial crisis, the B-piece investor in the typical CMBS would appoint the special servicer. What problems -due to the conflict of interest- would this give rise to?
2. The special servicer would be too eager to push mortgages into foreclosure because that would ensure that the B-piece investor retained control rights over the deal
3. The special servicer would modify delinquent mortgages in order to maximize the present value of recovery for the tranche holders
4. The special servicer would modify delinquent mortgages in order to prevent control rights from shifting to the Operating Advisor working on behalf of the AAA investors
5. The special servicer would modify delinquent mortgages in order to prevent the realization of losses to the B piece investor and to prevent control rights to shift to the next tranche from the bottom
6. The special servicer would be incentivized to push for higher appraisal of foreclosed mortgages to maximize value for the B-piece investor

1. A CMBS issuance is $1,550,000,000, of which the AAA tranches total $1,356,250,000 of principal balance, the AA tranche is $62,000,000 and the Single A tranche is $55,800,000. The subordination level, expressed as a percent, of the of the Single A ('A') tranche is
2. 11%
3. 4.9%
4. 8.5%
5. 3.9%
6. 3.6%