Commercial Real Estate Finance
Exam Questions
Course Introduction
Commercial Real Estate Finance explores the key principles, practices, and analytical tools employed in financing income-producing properties and commercial development projects. The course covers topics such as real estate market analysis, valuation methods, debt and equity structures, mortgage underwriting, risk assessment, and investment strategies. Students will develop practical skills in evaluating financing options, structuring deals, understanding lender and investor perspectives, and analyzing cash flows. Real-world case studies and financial modeling techniques are integrated to provide hands-on understanding of the challenges and opportunities in commercial real estate finance.
Recommended Textbook
Real Estate Finance Investments 16th Edition by
William B Brueggeman
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Page 2
Chapter 1: Real Estate Investment: Basic Legal Concepts
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Sample Questions
Q1) All other items not considered realty,including intangibles and movable things,are considered as:
A)Realty
B)Contractual
C)Personality
D)An estate
Answer: C
Q2) A quitclaim deed says that the grantor "quits" whatever claim he has in the property in favor of the grantee.
A)True
B)False
Answer: True
Q3) Which type of deed offers the grantee the MOST protection?
A)Quitclaim deed
B)Special warranty deed
C)General warranty deed
D)Officer's deed
Answer: C
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3
Chapter 2: Real Estate Financing: Notes and Mortgages
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Sample Questions
Q1) A transaction in which a borrower sells a property for less than the current balance of the loan and then provides all of the proceeds to the sale to the lender,typically in full satisfaction of the loan.
A)Prepackaged bankruptcy
B)Short sale
C)Judicial foreclosure
D)Friendly foreclosure
Answer: B
Q2) A mortgage is the same thing as a note.
A)True
B)False
Answer: False
Q3) Which of the following documents conveys title to a property at the time the purchaser completes the performance of the obligation called for in the document?
A)Junior mortgage
B)Package mortgage
C)Purchase-money mortgage
D)Land contract
Answer: D
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Page 4
Chapter 3: Mortgage Loan Foundations: The Time Value of Money
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Sample Questions
Q1) The future value of a $1 annuity compounded at 5% annually is greater than the future value of a $1 annuity compounded at 5% semi-annually.
A)True
B)False
Answer: False
Q2) Your friend just won the lottery.He has a choice of receiving $50,000 a year for the next 20 years or a lump sum today.The lottery uses a 15% discount rate.What would be the lump sum amount your friend would receive?
A)$312,967
B)$316,426
C)$500,000
D)$1,000,000
Answer: A
Q3) Assuming an interest rate of 6%,the present value of $1 that will be received a year from now is $0.75.
Answer: $0.94
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5
Chapter 4: Fixed Interest Rate Mortgage Loans
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Sample Questions
Q1) Borrowers with fixed rate mortgages generally benefit if actual inflation is higher than expected inflation.
A)True
B)False
Q2) Lenders and investors worry about default,interest rate,marketability,and liquidity risks.
A)True
B)False
Q3) Because its payment stream looks like a staircase,which loan is sometimes referred to as "stepped-up" financing due to prearranged payment increases?
A)CAM
B)CPM
C)GPM
D)ARM
Q4) The effective interest rate on a mortgage will always be higher than the stated rate of the loan.
A)True
B)False
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Page 6
Chapter 5: Adjustable and Floating Rate Mortgage Loans
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Sample Questions
Q1) A major benefit of a PLAM is the mortgage payment increases closely follows borrower salary increases.
A)True
B)False
Q2) A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments.The first two years of the loan have a "teaser" rate of 4%,after that,the rate can reset with a 5% annual payment cap.On the reset date,the composite rate is 6%.Assume that the loan allows for negative amortization.What would be the outstanding balance on the loan at the end of Year 3?
A)$190,074
B)$192,337
C)$192,812
D)$192,926
Q3) Which is NOT a component of an ARM?
A)A margin
B)An index
C)A chapter
D)Caps
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Chapter 6: Mortgages: Additional Concepts,
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Sample Questions
Q1) A house is for sale for $250,000.You have a choice of two 20-year mortgage loans with monthly payments: (1)if you make a down payment of $25,000,you can obtain a loan with a 6% rate of interest or (2)if you make a down payment of $50,000,you can obtain a loan with a 5% rate of interest.What is the effective annual rate of interest on the additional $25,000 borrowed on the first loan?
A)1.00%
B)6.00%
C)12.95%
D)18.67%
Q2) A house is sold with an assumable $156,000 below-market loan at 8.5% for a remaining term of 15 years.Current rates are 9.75% for 15 year mortgages.If the house sold for $240,000,what is the cash-equivalent value of the house.
A)$250,834.82
B)$229,165.18
C)$260,660.40
D)$219,339.60
Q3) Home equity loans do not require a mortgage lien on the property.
A)True
B)False
Page 8
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Chapter 7: Single-Family Housing: Pricing, investment, and Tax Considerations
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Sample Questions
Q1) A location quotient is the ratio of total employment to base employment.
A)True
B)False
Q2) Potential investors,in analyzing the profit potential for a distressed property,generally consider a financial framework including the acquisition phase,the holding period phase and the disposition phase.
A)True
B)False
Q3) Mortgage interest and property taxes are deductible for federal income tax purposes for homeowners.
A)True
B)False
Q4) Use of construction costs is very important in the sales comparison approach to valuation.
A)True
B)False
Q5) A housing bubble occurs when there is a big increase in the supply of homes.
A)True
B)False
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Chapter 8: Underwriting and Financing Residential Properties
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Sample Questions
Q1) What document usually summarizes the sources,disbursements,charges and credits associated with a real estate closing?
A)The purchase contract
B)The deed of trust
C)The listing agreement
D)The settlement statement
Q2) Title insurance protects the buyer from title claims against the property.
A)True
B)False
Q3) Determining the APR for federal truth-in-lending purposes is more complicated for an adjustable rate mortgage loan than it is for a fixed rate mortgage loan.
A)True
B)False
Q4) The calculated APR usually represents the true costs of financing.
A)True
B)False
Q5) The FTL Act and RESPA essentially say the same things.
A)True
B)False
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Chapter
the Market for Space
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Sample Questions
Q1) The supply of space is:
A)Inelastic in both the short run and the long run
B)Elastic in both the short run and the long run
C)Relatively inelastic in the short run,and highly elastic in the long run
D)Relatively elastic in the short run,and highly inelastic in the long run
Q2) To attract anchor tenants,property owners tend to charge them lower rents.They make-up for the lower rents by charging the anchor tenant higher CAM charges.
A)True
B)False
Q3) Expense stops protect the lessee from unexpected changes in market rents.
A)True
B)False
Q4) The term "percentage rent" refers to rent paid as a percent of space leased.
A)True
B)False
Q5) Which of the following is NOT considered to be an office or retail property?
A)Single-tenant - build to suit
B)Regional shopping center
C)Warehouse
D)Community center
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Chapter 10: Valuation of Income Properties: Appraisal and the Market for Capital
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Sample Questions
Q1) The capitalization rate for a leased fee estate should always be lower than the capitalization rate for a fee simple estate.
A)True
B)False
Q2) Capitalization rates will differ from yield rates when the income is expected to ________ over time.
A)Stay the same
B)Increase
C)Decrease
D)Both B and C.
Q3) The difference between the total property value (accounting for rents and cash flows)and the cost of constructing an improvement on a given site is:
A)Residual land value
B)Highest and best use value
C)Land value differential
D)Excess land value
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12
Chapter 11: Investment Analysis and Taxation of Income Properties
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Sample Questions
Q1) The general investment strategy based on a goal of acquiring existing,seasoned,relatively low-risk properties that are at least 80 percent leased to tenants with low credit risk,is:
A)Opportunistic investing
B)Core strategy
C)Core "Plus" strategy
D)Value added strategy
Q2) The adjusted basis of a property is defined as:
A)Original cost + capital improvements accumulated depreciation
B)Sales price mortgage balance sales costs
C)Sales price accumulated depreciation
D)Original cost mortgage balance sales costs
Q3) Property held as a personal residence cannot be depreciated.
A)True
B)False
Q4) Which of the following is FALSE regarding DCR?
A)It indicates whether NOI is sufficient to cover mortgage payments
B)It is not of concern to lenders when loan to value ratios are low
C)It is an indication of risk for the lender
D)It is derived from NOI / Mortgage Payment
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Chapter 12: Financial Leverage and Financing Alternatives
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Sample Questions
Q1) Everything else equal,the loan balance on a negative amortization loan will be less than that on an interest-only loan after the first year.
A)True
B)False
Q2) A loan in which the lender receives part of the proceeds from the sale of the property is known as a convertible loan.
A)True
B)False
Q3) Financial leverage is defined as benefits that may result to an investor by borrowing money at a rate of interest that is lower than the expected rate of return on total funds invested in a property.
A)True
B)False
Q4) If a property has positive leverage,the owner should borrow as much as possible. A)True
B)False
Q5) One benefit of leverage is that it reduces the variation in returns or losses. A)True
B)False
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Chapter 13: Risk Analysis
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Sample Questions
Q1) Risk due to potential tax law changes is referred to as:
A)Business risk
B)Financial risk
C)Legislative risk
D)Tax risk
Q2) A property with a higher standard deviation and a higher return is preferable to a property with a lower standard deviation and a lower return.
A)True
B)False
Q3) Financial risk increases as the amount of debt increases.
A)True
B)False
Q4) Which of the following refers to the risk real estate investors face stemming from changes in general economic conditions?
A)Financial risk
B)Liquidity risk
C)Environmental risk
D)Business risk
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Chapter 14: Disposition and Renovation of Income Properties
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Sample Questions
Q1) In a real estate transaction,gross profit divided by the contact price is referred to as the:
A)Net profit
B)Operating profit
C)Profit ratio
D)Mortgage profit
Q2) When evaluating the incremental costs of borrowing,if the interest rate is higher on the larger loan amount,the incremental cost of the additional funds borrowed tends to be lower than the rate on the larger loan.
A)True
B)False
Q3) For refinancing to be profitable,the effective cost of the debt must be less than the unlevered return on the projects being financed.
A)True
B)False
Q4) A property should be sold when the marginal rate of return falls below the rate at which funds can be reinvested.
A)True
B)False
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Chapter 15: Financing Corporate Real Estate
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Q1) For a large corporation with a good credit rating seeking to finance corporate real estate,the cost of a mortgage loan may be greater than the cost of unsecured corporate debt.
A)True
B)False
Q2) Because real estate is shown on the corporation's books at its historical cost less book depreciation,the value of corporate real estate is often considered "hidden" from shareholders.
A)True
B)False
Q3) The real estate activities of firms that only use real estate as part of their business operations are commonly referred to as:
A)Corporate real estate
B)Real estate analysis
C)Business real estate
D)Real estate finance
Q4) An operating lease does not affect a corporate balance sheet.
A)True
B)False
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Chapter 16: Financing Project Development
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Q1) Even after obtaining permanent financing,a developer still maintains the right to alter a project's design or the level of expenditures.
A)True
B)False
Q2) The MOST common method of distributing funds provided by a construction loan is a:
A)Single lump sum of money at the closing of the loan
B)Single lump sum of money at the end of the construction project to reimburse the developer for the project's expenses and profit
C)Series of payments throughout the construction project to reimburse the developer for costs incurred since the previous payment
D)Series of payments throughout the construction project to reimburse the developer for anticipated expenses in the upcoming period
Q3) A standby commitment differs from a permanent take-out commitment in that neither party really expects the standby commitment to be used by the developer.
A)True B)False
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Chapter 17: Financing Land Development Projects
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Q1) The loan submission package for a land development project must include project information,market financial data,government and regulatory information,legal documentation and emergency contingency plans.
A)True
B)False
Q2) A futures instrument,such as a T-bill,can be used to hedge a cash or a spot instrument such as the prime rate,where the two instruments are not perfectly correlated.What type of hedge is this referred to as?
A)A perfect hedge
B)A straight hedge
C)A cross hedge
D)None of the above
Q3) An option contract does not preclude the landowner from selling the property to someone else after the expiration date.
A)True
B)False
Q4) It is illegal for the lender to hold back funds from the developer.
A)True
B)False
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Chapter 18: Structuring Real Estate Investments:
Organizational Forms and Joint
Ventures
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Q1) Tom invested $20,000 in a limited partnership.His share of liabilities from mortgage debt was initially $45,000.The property suffered a loss in income during the first year,of which Tom's share was $5,000.However,in years two through four income allocated from the account equaled a total of $9,000 ($3,000 per year).The allocated reduction in debt at the end of year 4 from amortization of the loan is equal to $1,100.What is Tom's basis in the partnership interest at the end of year 4?
A)$67,900
B) $9,900
C)$77,900
D)$70,100
Q2) An IRR preference will always give the investor a return that is equal to or better than what the return would be with an IRR lookback.
A)True
B)False
Q3) C-corps have the advantage of providing a pass-through of income for tax purposes.
A)True
B)False
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Chapter 19: The Secondary Mortgage Market: Pass-Through Securities
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Q1) Generally,prices for zero coupon mortgage-backed bonds are more sensitive to interest rate changes than interest bearing MBBs.
A)True
B)False
Q2) Which of the following developments assure mortgage investors they will receive interest and principal payments at little or no risk?
A)The availability of hazard and title insurance
B)The availability of mortgage default insurance and loan guarantees
C)The development of standardized loan underwriting,processing,and servicing
D)All of the above
Q3) The Government National Mortgage Association (GNMA)was organized to perform three principal functions.Which of the following is NOT a function of GNMA?
A)Provide special assistance lending in support of federal programs
B)Manage and liquidate mortgages previously acquired by FNMA
C)Manage all secondary mortgage market operations
D)Provide a guarantee for FHA/VA mortgage pools that would provide a guarantee for mortgage backed securities
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Page 21
Chapter 20: The Secondary Mortgage Market: Cmos and
Derivative Securities
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Q1) In comparison to mortgage pass-though securities,CMOs attract a broader class of investors because,by prioritizing cash flows,they can offer more specific maturities.
A)True
B)False
Q2) For which of the following investments is the exact date of maturity known?
A)CMOs
B)MBBs
C)MPTs
D)MPTBs
Q3) If a premium is paid on a CMO issue (at the time of issue),yields will increase as prepayment rates accelerate.
A)True
B)False
Q4) In CMO terminology,planned amortization classes (PACs)are also known as companion tranches.
A)True
B)False
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Chapter 21: Real Estate Investment Trusts Reits
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Q1) A blended capitalization rate is an average of the capitalization rates that would be used for the individual properties in a portfolio if each was being valued separately.
A)True
B)False
Q2) Which of the following REIT types is organized to acquire the specific property or properties described in its prospectus?
A)A property trust
B)A mixed trust
C)A purchasing trust
D)An exchange trust
Q3) The growth of the REIT industry in the early 1970s was mainly attributed to which of the following?
A)Mortgage trust loans were less regulated than bank loans
B)Increased interest rates
C)Declined performance of other investments
D)Increased value of real property throughout the country
Q4) The U.S.is the only country that allows REITs (or similar investments).
A)True
B)False
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Chapter 22: Real Estate Investment Performance and Portfolio Considerations
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Q1) The unit of measure that is used by portfolio managers to measure returns for individual securities on a periodic basis is the:
A)Return on investment (ROI)
B)Holding period return (HPR)
C)Geometric mean return
D)Arithmetic mean return
Q2) What statistical concept do many portfolio managers use to represent risk when considering investment performance?
A)The standard deviation of returns
B)The difference,or "spread," between the highest value over the holding period and the lowest value over the holding period
C)The geometric mean return
D)The coefficient of variation
Q3) One would see the greatest amount of diversification from two securities that are:
A)Positively correlated
B)Negatively correlated
C)Not correlated
D)Perfectly correlated
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Chapter 23: Real Estate Investment Funds: Structure,
performance, benchmarking, and Attribution Analysis
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Q1) When reporting on a real estate investment fund,a manager may treat the financial information as an estimate of performance based on the assumption that all of the underlying properties could be sold at their appraised value.
A)True
B)False
Q2) Given the following fee structure,what is the total amount of fees that would be paid to a fund manager if the actual NOI was $45 million annually: 5.5% up to $20 million in annual NOI
5.0% for the next $35 million in annual NOI
4.5% for the next $45 million in annual NOI
4.0% for all over $45 million in annual NOI
A)$2.3 million
B)$1.1 million
C)$2.0 million
D)$1.8 million
Q3) Value-added funds take on less risk than core funds by purchasing only properties with very low vacancies and stable tenants.
A)True
B)False
Page 25
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