Real Estate Capital Markets
Exam Materials
Course Introduction
Real Estate Capital Markets explores the financial systems, instruments, and institutions that facilitate the flow of capital within the real estate sector. This course examines the roles of debt and equity financing, public and private market structures, real estate investment trusts (REITs), mortgage-backed securities, and other vehicles critical to real estate investment. Students will analyze how macroeconomic trends, interest rates, regulatory frameworks, and investor behavior impact capital allocation and risk management in property markets. Through case studies and financial modeling, learners will gain a practical understanding of how capital markets influence real estate development, valuation, and investment decision-making.
Recommended Textbook
Real Estate Finance Investments 16th Edition by William B Brueggeman
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23 Chapters
827 Verified Questions
827 Flashcards
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Chapter 1: Real Estate Investment: Basic Legal Concepts
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Sample Questions
Q1) After a house is purchased,contractors cannot ask the new owner of the house to pay any bills that were outstanding before the house was sold.
A)True
B)False
Answer: False
Q2) A reversion and a remainder are similar in that:
A)Both can be sold or mortgaged
B)Both cause the property to go back to the grantor after the sale
C)Neither is an actual interest in the property
D)Neither is considered a future estate
Answer: A
Q3) Real estate refers to the physical land and improvements constructed on the land.
A)True
B)False
Answer: True
Q4) A fee simple estate is a type of freehold estate.
A)True
B)False Answer: True
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Chapter 2: Real Estate Financing: Notes and Mortgages
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45 Flashcards
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Sample Questions
Q1) Which of the following types of bankruptcy is filed with the end result of liquidating the debtor's assets?
A)Chapter 7
B)Chapter 11
C)Chapter 13
D)Chapter 17
Answer: A
Q2) A non-recourse loan is one in which the borrower is personally liable for payment of all amounts due under the terms of the note.
A)True
B)False
Answer: False
Q3) Which of the following is NOT a minimum mortgage requirement?
A)Description of the property
B)Covenant of warranty
C)Prepayment clause
D)Covenant of seizin
Answer: C
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Chapter 3: Mortgage Loan Foundations: The Time Value of Money
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30 Verified Questions
30 Flashcards
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Sample Questions
Q1) The future value compound factor given for period (n)at 15%:
A)Would be less than the factor for period (n + 1)at 15%
B)Would be greater than the factor given for period (n + 1)at 15%
C)Would be the same as the factor given for period (n + 1)at 15%
D)Bears no relationship to the factor for period (n + 1)at 15%
Answer: A
Q2) For situations calling for other than annual compounding,each of these factors (when present)must be adjusted for the number of compounding periods in a year:
A)PV & FV
B)N & i,
C)N,i,& PMT
D)N,i,PV,& PMT
Answer: C
Q3) An investment may have more than one internal rate of return.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Fixed Interest Rate Mortgage Loans
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Sample Questions
Q1) The APR for a loan assumes it is prepaid after ten years.
A)True
B)False
Q2) Lenders and investors worry about default,interest rate,marketability,and liquidity risks.
A)True
B)False
Q3) In comparison to the first month's payment of a CAM,the first month's payment of a CPM:
A)Is higher
B)Is lower
C)Is the same
D)Cannot be determined with this information
Q4) What is the annual interest rate of a fully amortizing,20-year fixed rate $175,000 mortgage,with a monthly payment of $1,266.41?
A)5.10%
B)6.125%
C)6.25%
D)6.375%
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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) Given that every other factor is equal,which of the following ARMs will have the lowest expected cost?
A)An ARM with payment caps and negative amortization
B)An ARM with interest rate caps
C)An ARM with a longer adjustment interval
D)An ARM with no caps or limitations
Q3) ARMs were developed because lenders were tired of offering a limited selection of loan alternatives to borrowers.
A)True B)False
Q4) ARMs eliminate all the lender's interest rate risk.
A)True B)False
Q5) Negative amortization reduces the principal balance of a loan. A)True
B)False
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Chapter 6: Mortgages: Additional Concepts, analysis, and Applications
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Sample Questions
Q1) A loan with biweekly payments will have more interest than a monthly loan with the same interest rate and loan term.
A)True
B)False
Q2) A borrower has secured a 30 year,$150,000 loan at 7% with monthly payments.Fifteen years later,the borrower has the opportunity to refinance with a fifteen year mortgage at 6%.However,the up front fees,which will be paid in cash,are $2,500.What is the return on investment if the borrower expects to remain in the home for the next fifteen years?
A)6.00%
B)13.00%
C)22.62%
D)28.89%
Q3) A potential buyer is interested in purchasing a home that has an assumable below-market loan.The buyer determines that the financing premium associated with the below-market loan is worth $4,300.If similar houses sell for $100,000,the buyer should be willing to pay $104,300 or more for the property.
A)True
B)False
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Chapter 7: Single-Family Housing: Pricing, investment, and Tax Considerations
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36 Verified Questions
36 Flashcards
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Sample Questions
Q1) A location quotient is the ratio of total employment to base employment.
A)True
B)False
Q2) When calculating taxes,the difference between the acquisition cost and selling price of a house is called:
A)Ordinary income
B)Amortization
C)Capital gain
D)Deferred income
Q3) The objective of appraisal is to:
A)Establish the highest possible price that a property can sell for
B)Establish the most probable price that would be paid for a property under competitive market conditions
C)Establish the market value for a property's land without any structures (such as a house)
D)Establish the market value for a property if the property is put to its highest and best use
Q4) 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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38 Verified Questions
38 Flashcards
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Sample Questions
Q1) Which of the following is NOT typically included in housing costs used to calculate a borrower's payment-to-income ratio?
A)Principal and interest on the mortgage applied for
B)Mortgage insurance
C)Property taxes
D)Utilities
E)All of the above are included in the housing costs
Q2) An escrow account:
A)Ensures that a default insurance policy does not lapse if a borrower is in danger of default
B)Ensures that sufficient funds are collected to make annual hazard insurance and property tax payments
C)Is a non-interest-bearing account into which a borrower prepays certain fees and taxes
D)All of the above
Q3) The Federal Housing Administration (FHA)provides mortgage insurance,but does not make loans.
A)True
B)False
Page 10
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Chapter
Market for Space
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Sample Questions
Q1) 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
Q2) Which of the following describes the function of an expense stop in a lease?
A)Expenses are stopped from increasing
B)Expenses above the stop are paid by the owner
C)Expenses above the stop are paid by the tenant
D)Expenses below the stop are paid for by the tenant
Q3) Expense stops protect the lessee from unexpected changes in market rents. A)True
B)False
Q4) The use of a CPI index in a lease contract shifts risk to the tenant. A)True
B)False
Q5) The great majority of businesses lease the space they occupy rather than purchasing it outright.
A)True
B)False
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Chapter 10: Valuation of Income Properties: Appraisal and the Market for Capital
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Sample Questions
Q1) A property is sold for $200,000.Typical financing terms are an 85% loan with a 10% interest rate over 15 years.If the before-tax cash flow is $2,000,what is the overall capitalization rate?
A)10.96%
B)11.96%
C)19.13%
D)9.96%
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) A building has 12 foot ceilings that cause the electric bill to be $1,200 higher per year than a conventional ceiling height.Depreciation caused by the ceilings can be estimated by calculating the present value of the $1,200 per year over the remaining economic life of building.
A)True
B)False
Page 12
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Chapter 11: Investment Analysis and Taxation of Income Properties
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40 Verified Questions
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Sample Questions
Q1) A restaurant is for sale for $200,000.It is estimated that the restaurant will earn $20,000 a year for the next 15 years.At the end of 15 years,it is estimated that the restaurant will sell for $350,000.Which of the following would be MOST LIKELY to occur if the investor's required rate of return is 15 percent?
A)Investor would pursue the project
B)Investor would not pursue the project
C)Investor would pursue the project if the holding period were longer than 15 years
D)Not enough information provided
Q2) A property that produces a first year NOI of $80,000 is purchased for $750,000.The NOI is expected to increase by 15% in the sixth year when some of the leases turnover.The resale price in year 10 is expected to be $830,000.What is the net present value of the property based on the 10-year holding period and a discount rate of 9.5%?
A)$87,433
B)$87,221
C)$95,294
D)$116,490
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Page 13
Chapter 12: Financial Leverage and Financing Alternatives
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37 Flashcards
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Sample Questions
Q1) Properties with a higher ratio of debt are considered to also have a higher risk assuming everything else is equal.
A)True
B)False
Q2) When constructing a convertible mortgage,the lender will require a contract interest rate equal to or greater than the market rate on a similar mortgage without a conversion option.
A)True
B)False
Q3) A property is financed with an 85% loan-to-value ratio at 10% interest over 25 years.What would the BTIRR<sub>E</sub> on equity be estimated at,given that the BTIRR<sub>p</sub> is 10.75%?
A)10.1%
B)10.4%
C)15.0%
D)13.2%
Q4) 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) Consider an investment in which a developer plans to begin construction,of a building that will cost $1,000,000,in one year if,at that point,rent levels make construction feasible.There is a 50 percent chance that NOI will be $160,000 and a 50 percent chance that NOI will be $80,000.Using the traditional approach,which is similar to the "highest and best use" approach,what will the land value of the property be at the completion of the construction,assuming a cap rate of 10 percent (12 percent discount rate and an NOI growth rate of 2 percent)?
A)$120,000
B)$200,000
C)$300,000
D)$833,333
Q2) Partitioning the internal rate of return is useful because it helps the investor to determine how much of the return is from annual operating cash flow and how much is from the projected resale cash flow.
A)True
B)False
Q3) Percentage rent is common in office building leases.
A)True
B)False
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Page 15
Chapter 14: Disposition and Renovation of Income Properties
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Sample Questions
Q1) An investor calculates an incremental return of renovating a building of 14%.Other properties provide a 12.5% overall rate of return to equity investors.Therefore,the property is a good investment.
A)True
B)False
Q2) Which of the following represents the formula for the annual marginal rate of return (MRR)when trying to decide whether to hold or sell a property (ATCFS equals the after-tax cash flow from sale and ATCFO equals the after-tax cash flow from operations)?
A)MRR = (ATCFS (year t + 1)+ ATCFO (year t + 1) ATCFS (year t) ATCFO (year t)/ ATCFS (year t)
B)MRR = (ATCFS (year t + 1) ATCFO (year t + 1)+ ATCFS (year t))/ ATCFS (year t)
C)MRR = (ATCFS (year t + 1)+ ATCFO (year t + 1) ATCFS (year t))/ ATCFS (year t)
D)MRR = (ATCFS (year t + 1)+ ATCFO (year t + 1)+ ATCFS (year t))/ ATCFS (year t)
Q3) The marginal rate of return for a property is:
A)The APR on an incremental amount of borrowing
B)The expected holding period return earned when the investor purchases the property
C)The return earned on subprime property relative to prime property
D)The return gained by holding the property for one additional year
Page 16
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Chapter 15: Financing Corporate Real Estate
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Sample Questions
Q1) 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
Q2) It is estimated that corporate users control as much as ________ percent of all commercial real estate.
A)10
B)25
C)75
D)100
Q3) Because real estate usually declines in value faster than accounting depreciation,it is reasonable to assume that the property has zero value at the end of the lease term.
A)True
B)False
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Chapter 16: Financing Project Development
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Sample Questions
Q1) One of the risks of project development is "project risks," which are the result of unexpected changes in general market conditions affecting the supply and demand for space.
A)True
B)False
Q2) A permanent take-out commitment is:
A)A way to increase NOI for projects with large debt service obligations
B)An agreement by a lender to provide permanent financing for a property once construction is complete,provided all of the contingencies have been met.
C)Another term for a construction loan
D)The same thing as an acquisition and development loan
Q3) Which of the following is the usual progression for a real estate development project?
A)Land acquisition,completion,management,sale,construction
B)Land acquisition,construction,completion,management,sale
C)Land acquisition,construction,completion,sale,management
D)Land acquisition,management,construction,completion,sale
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Chapter 17: Financing Land Development Projects
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Sample Questions
Q1) An analysis of whether land can be purchased and developed profitably is known as:
A)Financial analysis
B)Feasibility study
C)Turnkey study
D)Project profitability
Q2) In order to obtain a land development loan,the developer is usually required to purchase title insurance.
A)True
B)False
Q3) By using an option contract,a developer may profit from an appreciation in the property's value over the option period.
A)True
B)False
Q4) While permitted for building projects,holdbacks are not permitted for land development projects.
A)True
B)False
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Chapter 18: Structuring Real Estate Investments:
Organizational Forms and Joint
Ventures
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Sample Questions
Q1) Tax losses cannot be allocated to partners in a syndication.
A)True
B)False
Q2) Which of the following imposes certain ownership and minimum capital requirements to avoid "dummy" corporations acting as sole corporate general partners?
A)Safe harbor rules
B)Caveat rules
C)Blind pool rules
D)Corporate regulations
Q3) When a syndication is offered as a "blind pool" offering,the properties to be purchased are not identified before funds are raised.
A)True
B)False
Q4) 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
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Chapter 19: The Secondary Mortgage Market: Pass-Through Securities
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Sample Questions
Q1) Compared to mortgage pass-though securities (MPTs),MBBs should be priced to provide:
A)Lower yields,because the MBB issuer bears lower prepayment risk
B)Higher yields,because the MBB issuer bears higher prepayment risks
C)The same yields,because of equivalent amounts of prepayment risk
D)None of the above
Q2) When pricing mortgage pass-through securities,issuers use each of the following methods to include prepayment assumptions EXCEPT:
A)FHA prepayment experience
B)The pool factor technique
C)The PSA prepayment model
D)Constant rates of prepayment
Q3) Which of the following is NOT a major type of mortgage-related security?
A)Mortgage-backed bonds (MBBs)
B)Mortgage pass-through security (MPTs)
C)American depositary receipts (ADRs)
D)Collateralized mortgage obligations (CMOs)
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Page 21
Chapter 20: The Secondary Mortgage Market: Cmos and
Derivative Securities
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Sample Questions
Q1) Which of the following is FALSE regarding a planned amortization class (PAC)tranche?
A)It has the greatest degree of cash flow certainty
B)Variable payments are received
C)Payments are received over predetermined period of time
D)Payments are received under a range of prepayment scenarios
Q2) CDO managers raises capital through the issuance of rated CDO debt and equity to purchase an undiversified pool of credit instruments.
A)True
B)False
Q3) A calamity call,which allows the issuer to recall all securities for a specified time,can be used in each of the following situations EXCEPT when:
A)Investors want to cash out their positions
B)Interest rates decline sharply
C)Prepayments decline sharply
D)Reinvestment rates are below what was promised to investors
Q4) A CMO does not completely eliminate prepayment risk.
A)True
B)False
22
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Chapter 21: Real Estate Investment Trusts Reits
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Sample Questions
Q1) Which of the following represents the space that is currently being rented to paying tenants?
A)Leased space
B)Occupied space
C)Ground space
D)REIT space
Q2) A REIT has an NOI of $15 per share and currently pays a dividend of $10 per share.The dividend is projected to increase by 4 percent by next year and continue to increase by 4 percent per year thereafter.Assuming that the blended cap rate is 9.75 percent and the required rate of return is 10.5 percent,what would the net asset value (NAV)of the REIT be?
A)$60.15
B)$71.89
C)$153.85
D)$160.00
Q3) REITs are required to pay out 90 percent of their earnings as dividends.
A)True
B)False
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Chapter 22: Real Estate Investment Performance and Portfolio Considerations
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Sample Questions
Q1) Both levered and unlevered properties are included in the NCREIF Property Index.
A)True
B)False
Q2) The data sources used to produce investment returns on investment properties include the:
A)National Association of Real Estate Professionals (NAREP)
B)National Association of Real Estate Investment Trusts (NAREIT)
C)National Board of Realtors (NBR)
D)All of the above
Q3) The NCREIF Property Index can be characterized by each of the following EXCEPT:
A)The index includes only properties with no outstanding mortgage debt
B)The information used in compiling the index is contributed by members of the NCREIF
C)The index reflects payments to both property managers and portfolio asset managers
D)All of the above are true
Q4) The NCREIF index measures the investment performance of real estate by using actual sale prices.
A)True
B)False
Page 24
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Chapter 23: Real Estate Investment Funds: Structure,
performance, benchmarking, and Attribution Analysis
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Q1) Compared to stock and bond funds,real estate investment funds are typically much easier to value due to the availability of real estate appraisals.
A)True
B)False
Q2) ________ funds mostly invest in existing operating properties that are stable,with low vacancy and current cash flows and are located in major metropolitan areas.
A)Core
B)Core plus
C)Value-Added
D)Opportunistic
Q3) If a fund manager has the opportunity to receive a fee as an added incentive to enhance the performance of the fund,the amount of the fee may be based on the extent to which the performance of the fund exceeds an agreed upon hurdle rate of return.Such a fee is referred to as a:
A)Bonus
B)Hurdle fee
C)Fiduciary fee
D)Promote
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