REE Chapter 17

The typical loan submission package includes the following elements
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The typical loan submission package includes the following elements
1. Loan application
2. Property description
3. legal & environmental information
4. cash flow estimates
5. appraisal report
6. feasibility report (on larger projects)
The second largest single source of long-term commercial real estate debt is:
life insurance companies
Which of the following has gained importance as a source of commercial real estate debt in the 1990s?
pension funds
When a note is used in the financing of property and borrowers have personal liability, the arrangement is known as:
recourse financing
Most commercial loans do not allow borrowers to freely prepay at par, because they generally contain:
all of the above
Calculate the size of the balloon payment on a $1.5 million loan at 9.25 percent, amortized monthly over 30 years. Assume the loan matures in 5 years.
$1,440,961
The index on a floating rate mortgage is typically the:
rate banks charge their best customers, the prime rate
A method of selling a property where the seller allows the buyer to pay the purchase price over a number of years thereby deferring taxable income is termed:
installment sale agreement
A $100,000 participation loan is originated at 7.75 percent. Payments are to be amortized monthly over 20 years. The loan calls for an equity participation payment of 10 percent of the sale price at the end of 12 years. Assuming the property sells for $250,000, what is the effective borrowing cost of the loan? Assume that there are no up-front financing costs associated with the loan.
9.09 percent
The payment of a specified percentage of the property's gross or net income to a lender is termed:
an income kicker
Assume a office building can be purchased for $2.5 million. The center's NOI is expected to be $218,750. A $2 million loan has been requested. The loan carries a 9.25 percent fixed contract rate, amortized monthly over 30 years with a 5-year term. Determine the property's debt coverage ratio.1.11The applicant's personal willingness and ability to service the debt on a commercial mortgage loan is not as crucially important as it is with residential loansTRUEEquity participations are designed to protect the lender from unexpected increases in inflation and interest ratesTRUEThe additional payments the lender receives on a participation mortgage, whether from operating cash flows or sale proceeds, are classified as provisional interestFALSEIn a sale-leaseback agreement, the lender (investor) is essentially taking an all equity positionTRUEA convertible mortgage gives the borrower the option to convert his equity in the project to debt after a specified number of yearsFALSEThe risk that the NOI on a property will be less than the debt service required is often referred to as financial riskTRUEThe expected variability of the return to the equity investor decreases with the amount of financial leverage.FALSEIn contrast to residential mortgage loans, the terms and provisions of commercial mortgages are highly standardizedFALSECommercial property lenders seldom require a third-party appraisal of the property to estimate its market valueFALSEthe lender's minimum acceptable DCR may be used to calculate the maximum allowable loan on a projectTRUE