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RE 250 CH17 & CH21
Terms in this set (40)
When measuring REIT income, the REIT industry recommends the use of which of the following earnings metrics?
Funds from Operations (FFO)
Though difficult to accurately measure, the market value of U.S. real estate held by non-real estate corporations is estimated to exceed $12.5 trillion. All of the following are examples of noninvestible commercial real estate EXCEPT:
assembly plant building owned by a group of investors as part of an LLC.
When fund managers collect contributions from multiple sources and "commingle" them to purchase properties, this is referred to as the use of commingled real estate funds. Which of the following institutional investors utilize commingled real estate funds for approximately one-half of their investments in real estate?
One measure of the importance of a publicly traded asset class in the U.S. economy can be calculated by multiplying the number of publicly traded shares by the current market price of the stock. The result of this calculation is more commonly referred to as:
Ownership forms for pooled equity investment can differ in terms of how the entity's cash flows are distributed to its investors. Which of the following ownership structures requires cash flows to be allocated to each shareholder in proportion to his or her ownership of the entity, thereby preventing special allocations to multiple classes of investors?
Subchapter S Corporation
The $12.6 trillion total market value of commercial real estate can be broken into four quadrants. Which of the following sectors of the commercial real estate market currently accounts for the largest proportion of market value?
privately held equity
Given the following information, calculate the price-FFO multiple for the following REIT:
Funds from Operation: $75,555,000
Stock Price: $17.80
Shares Outstanding: 185,000,000
In recent years, which of the following pooled ownership structures are used by private funds that are trying to attract capital from very high net worth and institutional investors?
Investors in commercial real estate can hold ownership positions either directly or indirectly. An entity that invests in real estate and sells claims on those investments to the ultimate investors is more commonly referred to as a(n):
When investing in commercial real estate through an intermediary, it is important to consider whether the fund has a finite or infinite life. By having a finite life, the fund manager is forced to eventually dispose of the assets and return the investors' capital. With which of the following fund structures do you expect the issues associated with finite life to be least prevalent?
open-end commingled real estate fund
Real estate private equity funds can focus investment on anything from "Class A" real estate to redevelopment in the urban center. On the risk-return spectrum, which of the following private equity fund categories tends to have a heavier development component and often involves investment in riskier property types and locations?
In most small to medium private real estate deals, syndicators play important roles within the origination, operation, and completion phases of a real estate syndicate's life. All of the following are responsibilities of the syndicator in the operation phase of a syndicate's life EXCEPT:
prepare the properties for sale.
There are a set of restrictive conditions that REITs must satisfy on an ongoing basis in order to maintain their special tax status. All of the following statements regarding the main restrictions are true EXCEPT:
a REIT must distribute at least 75% of its taxable income to shareholders in the form of dividends.
An organizational structure in which a REIT is a managing partner and typically majority owner in an operating partnership, which in turn, owns all or part of individual property partnerships is more commonly referred to as a(n):
Which of the following measures, equal to the estimated total market value of a REITs underlying assets, allows investors to compare the value of a publicly traded security to the value of the properties that it holds in the private market?
net asset value
In most pooled ownership forms a single partner is empowered to act on behalf of the investors in terms of making property investment decisions. Based on your understanding of the different types of pooled ownership, which of the following structures would we expect this issue to be the least prevalent?
The minimum dollar investment amount for purchasing shares in a public, non-listed REIT (PNLR) typically ranges from:
Given the following information, calculate the price-FFO multiple for the following REIT:
Funds from Operation: $4,000,000
Stock Price: $40
Shares Outstanding: 1,000,000
Which of the following investment strategies involves starting (or acquiring) and then operating a real estate company which may then acquire real estate investments, development properties, and/or act as a general partner in a variety of investment funds?
full platform operating company
There are a number of ways in which individual and institutional investors can hold investments in commercial real estate as a part of their portfolio. One way is to purchase and hold the title to the actual commercial property, which gives the owner complete control of the asset. This type of transaction would be considered which of the following?
direct investment in private commercial real estate equity
Both owners and managers must carefully designate their responsibilities in the management agreement. In a management agreement, all of the following would typically be responsibilities of the property manager EXCEPT:
The real estate industry applies which of the following labels to individuals who are responsible for the day-to-day operations of the property.
Real estate investment managers are often compensated based on the market value of assets under management. Typical asset management fees range from ______ of the estimated market value of managed assets.
0.5 to 1.5%
Property managers may choose at times not to perform ordinary maintenance at the time a problem is detected in order to boost short-run NOI. This type of maintenance is more commonly referred to as:
In evaluating potential tenants for residential rental properties, a landlord may be interested in calculating the ratio of prospective rent to income for the applicant. Given the following information, calculate the rent to income ratio for the applicant.
Applicant's Gross Annual Salary (Income): $45,000
Prospective Monthly Rent: $1,000
Applicant's Annual Income Tax and Benefit Payments: $7,650
A property management contract establishes an agency relationship between the manager and the owner. Considering that the management fee is often calculated as a percentage of gross income, this would seem to create an agency problem in that the agreement does not give managers the incentives to control operating expenses while they attempt to increase rental income. Though seldom the case, basing the property management fee on which of the following measures would, in theory, better align the interests of the owner and manager?
net operating income
Decisions to improve a property are less frequent than the decisions to maintain and repair it. A conversion of a property that produces a creative use of the structure that is different from its original purpose is more commonly referred to as a(n):
While some property owners choose to perform both the property and asset manager functions themselves, many commercial property owners choose to employ professional property managers instead. The property manager works under a management contract in which the manager is empowered to serve as the owner's fiduciary. This type of relationship is more commonly referred to as a(n)
Suppose an owner is trying to decide whether or not to make improvements to her property. Given the following information, what would be the value added or potential loss if the improvements are undertaken?
Current rent per square foot: $8.75
Anticipated rent per square foot: $14.50
Cost of improvements: $250,000
Square feet: 34,000
loss of $54,500
The property manager works under a management agreement between the property owner and the property management firm. As compensation for his duties, the property manager will negotiate a management fee. Given the following information, calculate the dollar compensation to the property manager in year 1.
Potential Gross Income of the property: $250,000
Vacancy and Collection Losses: 15%
Miscellaneous Income: $50,000
Management Fee: 3%
Leases are considered the engines that drive property values. Therefore, it should not be surprising that owners of commercial property may seek an independent leasing broker to focus on finding tenants to lease space. In exchange for their services, leasing brokers are paid a commission based on what percentage of the face amount of the lease?
3 to 5%
While college-level courses are not widely available, a number of professional and trade organizations exist in the field of property management. Which of the following certifications awarded by the Institute of Real Estate Management is aimed at individuals who manage larger, residential, office, industrial, or retail properties?
Certified Property Manager (CPM)
Despite the magnitude of their real estate holdings, many non-real estate corporations have historically expended little effort to manage these assets effectively. Recently, the development of which of the following markets has helped to quell concerns related to this issue?
Brokers or agents that specialize in helping tenants find suitable space are more commonly referred to as:
Unlike many publicly traded stock and bond investments, commercial real estate investments:
yield returns generated mostly from the asset's net operating income, rather than price appreciation.
For residential properties, the ratio of prospective rent to gross monthly income is a valuable screening tool in judging a potential tenant's ability to fulfill rent obligations. Generally, this ratio should not exceed:
An owner whose property is in a strong market position, where fewer services can be offered to tenants for the same dollar of rental income and where the owner will not lose tenants if the property is under-maintained, is said to participate in a market that has:
a relatively inelastic demand for space.
The real estate industry applies which of the following labels to individuals who are responsible for the decisions that affect the physical, financial, or ownership structure of the property.
Which of the following classifications of property maintenance includes a program of regular inspections and care to avert potential problems.
Commercial real estate returns are determined in no small part by how well the ongoing management function is performed. Management decisions can be classified into two categories: property management and asset management. Which of the following functions would be considered a primary responsibility of an asset manager?
property acquisitions and dispositions
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