Commercial Real Estate Finance
Exam Review
Course Introduction
Commercial Real Estate Finance explores the principles and practices involved in financing income-producing properties such as office buildings, shopping centers, industrial facilities, and multifamily housing. The course examines sources of capital, loan structures, risk analysis, valuation methods, and legal considerations fundamental to commercial real estate transactions. Students will gain an understanding of mortgage markets, underwriting standards, and the role of financial modeling in investment decisions. Emphasis is placed on current industry trends, case studies, and practical approaches to evaluating and securing funding for commercial real estate ventures.
Recommended Textbook
Real Estate Finance Investments 16th Edition by
William B Brueggeman
Available Study Resources on Quizplus
23 Chapters
827 Verified Questions
827 Flashcards
Source URL: https://quizplus.com/study-set/3426
Page 2
Chapter 1: Real Estate Investment: Basic Legal Concepts
Available Study Resources on Quizplus for this Chatper
26 Verified Questions
26 Flashcards
Source URL: https://quizplus.com/quiz/68060
Sample Questions
Q1) As compared to other types of deeds,a general warranty deed provides the most comprehensive warranties about the quality of the title to the property.
A)True
B)False
Answer: True
Q2) A fee simple estate is a type of freehold estate.
A)True
B)False
Answer: True
Q3) The term real estate refers to the ownership rights associated with the physical land and improvements.
A)True
B)False
Answer: False
Q4) Real estate refers to the physical land and improvements constructed on the land.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Real Estate Financing: Notes and Mortgages
Available Study Resources on Quizplus for this Chatper
45 Verified Questions
45 Flashcards
Source URL: https://quizplus.com/quiz/68059
Sample Questions
Q1) Which of the following statements is FALSE regarding foreclosure?
A)In judicial foreclosure,property subject to attachment and execution is limited to the mortgaged property
B)If the sale of the mortgaged property realizes a price above the claims of the mortgage and expense of the sale,the balance goes to the mortgagor
C)Redemption can be accomplished by paying 95% of the debt,interest and costs due to mortgage
D)All of the above
Answer: B
Q2) If a property encumbered by a mortgage is sold at a foreclosure sale for an amount more than the value of the mortgage,the mortgagor is not obligated to pay the mortgagee the remaining balance.
A)True
B)False
Answer: False
Q3) A technical default can result from failure to keep the property in repair. A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Mortgage Loan Foundations: The Time Value of Money
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/68058
Sample Questions
Q1) In order to solve a compounding problem,you must know all four of the variables in order to solve for the fifth variable.
A)True
B)False
Answer: True
Q2) A deposit placed in an interest-earning account earning 8% a year will double in value in ________ years.
A)6
B)8
C)9
D)72
Answer: C
Q3) Ten years ago,you put $150,000 into an interest-earning account.Today it is worth $275,000.What is the effective annual interest earned on the account?
A)47.99%
B)6.00%
C)6.25%
D)8.33%
Answer: C
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Fixed Interest Rate Mortgage Loans
Available Study Resources on Quizplus for this Chatper
38 Verified Questions
38 Flashcards
Source URL: https://quizplus.com/quiz/68057
Sample Questions
Q1) 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%
Q2) Origination fees are tax deductible as an interest expense.
A)True
B)False
Q3) If a fully amortizing 30-year fixed rate mortgage was originally taken at $200,000,but now has a balance of $50,385,how many more monthly payments will it take before it will be paid off?
A)45 months
B)51 months
C)55 months
D)90 months
Q4) Determining a loan balance on a CPM is a simple present value of an annuity problem.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Adjustable and Floating Rate Mortgage Loans
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/68056
Sample Questions
Q1) A borrower with an interest-only loan may end up owing more at the end of the loan than the original loan amount.
A)True
B)False
Q2) A borrower takes a 30-year,fully amortizing,5/1 ARM for $225,000 with an initial interest rate of 4.375%.Assuming the index on which the loan rate is based rises by 1% in the fourth year of the loan and remains at that level,what will the payment be in the sixth year of loan?
A)$1,123.39
B)$1,241.89
C)$1,259.94
D)$1,403.71
Q3) ARMs were developed because lenders were tired of offering a limited selection of loan alternatives to borrowers.
A)True
B)False
Q4) Negative amortization reduces the principal balance of a loan.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Mortgages: Additional Concepts, analysis, and Applications
Available Study Resources on Quizplus for this Chatper
35 Verified Questions
35 Flashcards
Source URL: https://quizplus.com/quiz/68055
Sample Questions
Q1) A house that is financed with a below-market loan is available for sale.The value of the house will be higher than similar properties regardless of the other terms of the loan.
A)True
B)False
Q2) Mr.Tramp made a mortgage 5 years ago for $85,000 at 8.25% interest and a 15 year term.Rates have now risen to 10% for an equivalent loan.Mr.Tramp's lender is willing to discount the loan by $2,000 if he will prepay the loan.What rate of return would Mr.Tramp receive by prepaying the loan?
A)10.24%
B)8.95%
C)14.32%
D)9.14%
Q3) The market value of a loan is:
A)The loan balance times one minus the market rate
B)The loan balance times one minus the original rate
C)The future value of the remaining payments
D)The present value of the remaining payments
To view all questions and flashcards with answers, click on the resource link above.
Page 8
Chapter 7: Single-Family Housing: Pricing, investment, and Tax Considerations
Available Study Resources on Quizplus for this Chatper
36 Verified Questions
36 Flashcards
Source URL: https://quizplus.com/quiz/68054
Sample Questions
Q1) The capitalization effect:
A)Is one of the major factors leading to housing bubbles
B)Has no impact on housing prices
C)Relates the quality of public services that individuals receive relative to the taxes that are paid for the services
D)Relates the interest rate on mortgage loans to the value of residential real estate
Q2) It is likely that two identical houses located in different school districts will sell for different prices.
A)True
B)False
Q3) One concern of appraisers when using the sales comparison approach is that financing benefits paid for by a seller of a property may result in a selling price for the comparable property that is lower than the market value.
A)True
B)False
Q4) A housing bubble occurs when there is a big increase in the supply of homes. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Underwriting and Financing Residential Properties
Available Study Resources on Quizplus for this Chatper
38 Verified Questions
38 Flashcards
Source URL: https://quizplus.com/quiz/68053
Sample Questions
Q1) The uniform settlement statement displays settlement summaries for which of the following parties to the closing?
A)Borrower and seller
B)Borrower and broker
C)Borrower,seller,and broker
D)Borrower,seller,and lender
Q2) Which of the following is typically NOT one of the settlement costs that are escrowed over the life of the loan?
A)Property taxes
B)Mortgage insurance
C)Selling commissions
D)Hazard insurance
Q3) Payment to income ratio is BEST described as:
A)The factor used to determine if interest on mortgage loans is tax deductible
B)The only measure of a borrower's ability to fulfill his or her loan obligations
C)The ratio of the estimated rental income to the expected payments on a rental property
D)The ratio of the expected payments on a property to the income of the borrower
To view all questions and flashcards with answers, click on the resource link above. Page 10
Available Study Resources on Quizplus for this Chatper
41 Verified Questions
41 Flashcards
Source URL: https://quizplus.com/quiz/68052
Sample Questions
Q1) Income after deducting loss of rents due to vacancy and nonpayment of rents,as well as any concessions,is referred to as:
A)Potential gross income
B)Effective gross income
C)Net operating income
D)Before-tax cash flow
Q2) The dollar amount by which total rent exceeds base rent under a percentage lease for retail is referred to as:
A)Overage rent
B)Excess rent
C)Percentage rent
D)Marginal rent
Q3) The existing stock of space cannot be adjusted in the short run,but can be increased or decreased in the long run.
A)True
B)False
Q4) A gross lease is riskier for the lessor than a net lease.
A)True
B)False
11
To view all questions and flashcards with answers, click on the resource link above.
Chapter 10: Valuation of Income Properties: Appraisal and the Market for Capital
Available Study Resources on Quizplus for this Chatper
47 Verified Questions
47 Flashcards
Source URL: https://quizplus.com/quiz/68051
Sample Questions
Q1) The assumption that a knowledgeable buyer would not pay more for property than what other buyers have recently paid for comparable properties,provides the rationale for the sales comparison approach.
A)True
B)False
Q2) A gross income multiplier can be calculated by dividing the gross income by the sales price.
A)True
B)False
Q3) Which of the following steps normally would be used in the cost approach to value?
A)Estimate net operating income of the property
B)Multiply accrued depreciation by the assessed cost
C)Add actual construction costs to the land value
D)Subtract accrued depreciation from the replacement cost
Q4) Return on investment and change in net operating income are essential factors for cost analysis.
A)True
B)False
Page 12
To view all questions and flashcards with answers, click on the resource link above.
Chapter 11: Investment Analysis and Taxation of Income Properties
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/68050
Sample Questions
Q1) Residential property is depreciated over 27.5 years where as non-residential property is depreciated over 31.5 years.
A)True
B)False
Q2) Property held as a personal residence cannot be depreciated.
A)True
B)False
Q3) A property produces a first year NOI of $100,000 which is expected to grow by 2% per year.If the property is expected to be sold in year 10,what is the expected sale price based on a terminal capitalization rate of 9.5% applied to the eleventh year NOI?
A)$1,308,815
B)$1,283,152
C)$1,263,158
D)$1,257,992
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
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: Financial Leverage and Financing Alternatives
Available Study Resources on Quizplus for this Chatper
37 Verified Questions
37 Flashcards
Source URL: https://quizplus.com/quiz/68049
Sample Questions
Q1) A property produces an 8.92% ATIRR on the total investment considering a tax rate of 28%.What is the maximum interest rate that could be paid on debt without causing the leverage to be negative?
A)12.39%
B)11.42%
C)6.42%
D)9.37%
Q2) In an inflationary environment where property values are also rising,a participation loan may provide a lender with some protection against unanticipated inflation.
A)True
B)False
Q3) An interest-only loan will provide a higher debt coverage ratio than an amortizing loan with the same interest rate.
A)True
B)False
Q4) If a property has positive leverage,the owner should borrow as much as possible. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 14
Chapter 13: Risk Analysis
Available Study Resources on Quizplus for this Chatper
31 Verified Questions
31 Flashcards
Source URL: https://quizplus.com/quiz/68048
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.Assuming a cap rate of 10 percent (12 percent discount rate and an NOI growth rate of 2 percent)what would the land value be at the completion of the construction,under the real options approach?
A)$120,000
B)$200,000
C)$300,000
D)$833,333
Q2) When an investor performs an investigation while considering acquisition of a property,this is referred to as:
A)Investigation
B)Risk analysis
C)Due diligence
D)Acquisition analysis
Q3) Real estate is generally dramatically affected by inflation risk.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: Disposition and Renovation of Income Properties
Available Study Resources on Quizplus for this Chatper
38 Verified Questions
38 Flashcards
Source URL: https://quizplus.com/quiz/68047
Sample Questions
Q1) An investor is considering refinancing a property.The current mortgage has an interest rate of 8.75% and a mortgage balance equal to 45% of the property value due to amortization of the loan and some appreciation in value.However,the investor would like to refinance at an amount equal to 75% of the property value.He has found out that the property can be refinanced at a 75% loan-to-value ratio for 9.5% interest over 15 years.What can be said about the incremental cost of refinancing?
A)It will be higher than 9.5%
B)It will be less than 9.5%
C)It will be equal to 9.5%
D)Can't tell without additional information
Q2) A property should be sold when which of the following occurs?
A)The marginal rate of return is rising but less than the reinvestment rate
B)The marginal rate of return is constant
C)The marginal rate of return is zero
D)The marginal rate of return is falling and becomes equal to the reinvestment rate
Q3) Increasing rents tend to increase the marginal rate of return on a property.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Financing Corporate Real Estate
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/68046
Sample Questions
Q1) Which of the following conditions will NOT cause a lease to be categorized as a capital lease?
A)It extends for at least 90 percent of the asset's life
B)It transfers ownership to the lessee at the end of the lease term
C)It seems likely that ownership will be transferred to the lessee at the end of the lease term because of a "bargain purchase" option
D)The present value of the contractual lease payments equals or exceeds 90 percent of the fair market value of the asset at the time the lease is signed
Q2) If a company's management is unsure of how long it will need access to a real estate asset,it is likely that the company will lease the property.
A)True
B)False
Q3) An operating lease does not affect a corporate balance sheet. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 16: Financing Project Development
Available Study Resources on Quizplus for this Chatper
35 Verified Questions
35 Flashcards
Source URL: https://quizplus.com/quiz/68045
Sample Questions
Q1) A bullet loan is a construction loan that,in effect,becomes permanent financing when construction is complete.
A)True
B)False
Q2) Loans made under the assumption that markets will turn around are referred to as spec loans.
A)True B)False
Q3) 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
Q4) The demand for retail space should be examined in terms of the characteristics of the tenant's demand in a given market.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 18
Chapter 17: Financing Land Development Projects
Available Study Resources on Quizplus for this Chatper
35 Verified Questions
35 Flashcards
Source URL: https://quizplus.com/quiz/68044
Sample Questions
Q1) Generally,which of the following is FALSE regarding interest rate risk management techniques?
A)Borrowers can protect themselves from upward movements in interest rates by using interest rate caps
B)Borrowers can protect themselves from upward movements in interest rates by using interest rate futures contracts
C)Borrowers can benefit from downward movements in interest rates by using interest rate caps
D)Borrowers can benefit from downward movements in interest rates by using interest rate futures contracts
Q2) It is proper to include an estimate for developer profit as a cost of development when projecting net cash flows and evaluating whether a required rate of return will be met.
A)True
B)False
Q3) The release price is the dollar amount of a loan that must be repaid when a lot is sold.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 19
Chapter 18: Structuring Real Estate Investments:
Organizational Forms and Joint
Ventures
Available Study Resources on Quizplus for this Chatper
31 Verified Questions
31 Flashcards
Source URL: https://quizplus.com/quiz/68043
Sample Questions
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 the balance of Tom's capital account at the end of year 4?
A) $9,900
B)$24,000
C)$69,000
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) Syndications can take the form of corporations,limited partnership,or other organizational forms.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: The Secondary Mortgage Market: Pass-Through Securities
Available Study Resources on Quizplus for this Chatper
37 Verified Questions
37 Flashcards
Source URL: https://quizplus.com/quiz/68042
Sample Questions
Q1) A 10-year maturity mortgage-backed bond is issued.The bond is a zero coupon bond that promises to pay $10,000 (par)after 10 years.At issue,bond market investors require a 15 percent interest rate on the bond.What is the initial price on the bond?
A)$2,252
B)$2,472
C)$8,696
D)$10,000
Q2) All other conditions being the same,the more seasoned a mortgage is:
A)The greater the likelihood of prepayment
B)The greater the likelihood of default
C)The greater the likelihood that the mortgage will be carried to maturity
D)All of the above
Q3) The standard PSA prepayment curve assumes prepayments of 0.2% per month for the first 30 months and then 0.5% per month thereafter.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 20: The Secondary Mortgage Market: Cmos and
Derivative Securities
Available Study Resources on Quizplus for this Chatper
41 Verified Questions
41 Flashcards
Source URL: https://quizplus.com/quiz/68041
Sample Questions
Q1) What is the primary distinction between mortgage-related securities backed by residential mortgages and those backed by commercial mortgages?
A)Default is the key risk with residential mortgages; prepayment is the key risk with commercial mortgages
B)Interest rate risk is the key risk with residential mortgages; prepayment is the key risk with commercial mortgages
C)Prepayment is the key risk with residential mortgages; default is the key risk with commercial mortgages
D)Prepayment is the key risk with residential mortgages; interest rate risk is the key risk with commercial mortgages
Q2) The issuer of a mortgage pass-through bond bears all of the prepayment risk of the underlying mortgages.
A)True
B)False
Q3) CDOs often include "B" notes,mezzanine debt and preferred equity as investments.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 22
Chapter 21: Real Estate Investment Trusts Reits
Available Study Resources on Quizplus for this Chatper
37 Verified Questions
37 Flashcards
Source URL: https://quizplus.com/quiz/68040
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) At least 95 percent of the value of a REIT's assets must consist of real estate assets,cash,and government securities.
A)True
B)False
Q3) The most common type of REITs in today's market are:
A)Equity trusts
B)Mortgage trusts
C)Hybrid trusts
D)Partnership trusts
Q4) REITs must be passive investments with external advisors.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 23
Chapter 22: Real Estate Investment Performance and Portfolio Considerations
Available Study Resources on Quizplus for this Chatper
33 Verified Questions
33 Flashcards
Source URL: https://quizplus.com/quiz/68039
Sample Questions
Q1) Which of the following is a major property category associated with the NCREIF Index:
A)Apartment complexes
B)Office buildings
C)Hotels
D)All of the above
Q2) Regarding real estate investments,risk that is associated with the type of property and its location,design,lease structure,and so on can be thought of as:
A)Marketability risk
B)Liquidity risk
C)Business risk
D)Interest rate risk
Q3) Why does including REITs in a portfolio containing S&P 500 securities produce diversification benefits?
A)Real estate investment returns are highly correlated with returns for stocks
B)Real estate investment returns are not highly correlated with returns for stocks
C)Real estate investment returns are not subject to federal income taxes
D)Real estate investment returns do not change much from year to year
To view all questions and flashcards with answers, click on the resource link above.
Page 24
Chapter 23: Real Estate Investment Funds: Structure,
performance, benchmarking, and Attribution Analysis
Available Study Resources on Quizplus for this Chatper
34 Verified Questions
34 Flashcards
Source URL: https://quizplus.com/quiz/68038
Sample Questions
Q1) Large,private funds are typically created by real estate investment managers who develop an investment strategy involving which of the following: (1)the types of properties to be acquired and markets where acquisitions will be made,(2)how the fund will be operated,(3)when properties are to be sold,and (4)how the fund strategy will align with the real estate investment requirements of investors.
A)1,2,3
B)1,2,4
C)2,3,4
D)All of the above
Q2) In a well-diversified investment portfolio,the allocation of real estate investments should not exceed five percent.
A)True
B)False
Q3) Opportunity funds are designed for long-term investment and,accordingly,will generally maintain ownership of acquired properties for several years.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 25