Real Estate Development
Chapter Exam Questions
Course Introduction
Real Estate Development explores the dynamic process of transforming ideas into tangible properties, encompassing the identification, acquisition, financing, design, construction, and marketing of real estate projects. The course examines the roles of developers, investors, regulatory bodies, and other stakeholders, while addressing site selection, market analysis, project management, risk assessment, legal considerations, and ethical issues. Students gain a comprehensive understanding of the economic, environmental, and social factors that influence development decisions, preparing them to navigate the challenges and opportunities within residential, commercial, and mixed-use property markets.
Recommended Textbook
Real Estate Finance and Investments 13th Edition by William Brueggeman
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Chapter 1: Real Estate Investment: Basic Legal Concepts
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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) 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
Q3) Which of the following is NOT a good method of title assurance?
A) Seller provides a warranty in the deed.
B) An attorney searches recorded documents.
C) Title insurance is purchased.
D) Seller provides a quitclaim deed.
Answer: D
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Chapter 2: Real Estate Financing: Notes and Mortgages
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Q1) What is usually executed at the same time as a mortgage and creates the obligation to repay the loan in accordance with its terms?
A) Recording acts
B) Ownership interests
C) Method of payment
D) Promissory note
Answer: A
Q2) Under lien theory,title and the right to possession pass from the mortgagor to the mortgagee when the mortgage is executed.
A)True
B)False
Answer: False
Q3) If a debtor,under Chapter 7 bankruptcy,is not behind on his mortgage payments,he does not have the give up the property.
A)True
B)False
Answer: True
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Chapter 3: Mortgage Loan Foundations: The Time Value of Money
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Q1) Begin with a single sum of money at period 0.First,calculate a future value of that sum at 12.01%.Then discount that future value back to period 0 at 11.99%.In relation to the initial single sum,the discounted future value:
A) is greater than the original amount.
B) is less than the original amount.
C) is the same as the original amount.
D) cannot be determined with the information given.
Answer: A
Q2) 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
Q3) One way to calculate the present value of a single payment is with the following formula:
PV = FV * (1+i)n.
A)True
B)False
Answer: False
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Chapter 4: Fixed Interest Rate Mortgage Loans
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Q1) With a reverse annuity mortgage the borrower receives payments from the bank.
A)True
B)False
Q2) Over the life of the loan,which of the following loans would continually have a lower principal balance given each loan had the same term,principal amount,and average interest rate?
A) CAM
B) CPM
C) GPM
D) Cannot be determined with this information
Q3) At the end of five years,calculating the loan balance of a constant payment mortgage is simply the:
A) present value of a single amount.
B) future value of a single amount.
C) present value of an ordinary annuity.
D) future value of an ordinary annuity.
Q4) The APR for a loan assumes it is prepaid after ten years.
A)True
B)False
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Chapter 5: Adjustable and Floating Rate Mortgage Loans
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Q1) With which loan does the lender have the lowest interest rate risk?
A) Loan 1
B) Loan 2
C) Loan 3
D) Loan 4
Q2) If an ARM index increased 15%,the negative amortization on a loan with a 5% annual payment cap is calculated by:
A) using the same payment as last year and deducting 5% from the principal balance.
B) increasing the payment by 5%.
C) totaling the difference between the payment as if no cap existed and the 5% capped payment.
D) compounding the difference between the payment as if no cap existed and the 5% capped payments.
Q3) Negative amortization reduces the principal balance of a loan.
A)True
B)False
Q4) ARMs eliminate all the lender's interest rate risk.
A)True
B)False
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Chapter 6: Mortgages: Additional Concepts, Analysis, and Applications
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Q1) Buydown loans have initial payments that are lower than they would be without the buydown provision.
A)True
B)False
Q2) Which of the following is TRUE regarding the incremental Cost of Borrowing :
A) It should be less than the rate for a first mortgage
B) It should be compared to the cost of obtaining a second mortgage
C) It is used to calculate the APR for the loan
D) It is independent of Loan-to-Value Ratio
Q3) When purchasing a $210,000 house,a borrower is comparing two loan alternatives.The first loan is a 90% loan at 10.5% for 25 years.The second loan is an 85% loan for 9.75% over 15 years.Both have monthly payments and the property is expected to be held over the life of the loan.What is the incremental cost of borrowing the extra money?
A) 20.25%
B) 16.17%
C) 11.36%
D) 12.42%
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Chapter 7: Single-Family Housing: Pricing, Investment, and Tax Considerations
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Q1) The appraised value of a property usually represents:
A) theactual value of the property.
B) theactual selling price of the property.
C) theactual opinion of an appraiser
D) theactually replacement value of the property
Q2) One of the following is not tax deductible for homeowners:
A) points in mortgage loans
B) mortgage interest
C) property taxes
D) maintenance expenses
Q3) The appraisal function is purely objective;an appraiser's judgment is not part of the decision process.
A)True
B)False
Q4) Estimating the land value for an improved property cannot be accomplished using the sales comparison method of valuation.
A)True
B)False
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Chapter 8: Underwriting and Financing Residential Properties
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Q1) A typical RESPA closing statement has which of the following characteristics?
A) 2columns - Summary of borrower's and seller's transactions
B) 2columns - Summary of borrower's and broker's transactions
C) 3columns - Summary of borrower's,seller's,and broker's transactions.
D) 3columns - Summary of borrowers,seller's,and lender's transactions.
Q2) FTL requires that the lender disclose an estimated cost of financing within three days of loan application.
A)True
B)False
Q3) RESPA requires a lender to disclose good faith estimates of closing costs within three days of loan application.
A)True
B)False
Q4) Which typically is 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
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Chapter
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Q1) Which does the term anchor tenant usually refer to?
A) Someone who leases space at a marina
B) The largest tenant in an office building
C) A department stores in a mall
D) The tenants who pay the highest rent in a mall
Q2) Expense stops protect the lessee from unexpected changes in market rents.
A)True
B)False
Q3) Net operating income is the income after deduction of mortgage payments.
A)True
B)False
Q4) Which of the following is TRUE for a net lease?
A) All expenses are paid for by the owner
B) All expenses are paid for by the tenant
C) All expenses are paid by the lender
D) All expenses are paid by the investor
Q5) The term "usable area" is typically synonymous with "leaseable area."
A)True
B)False
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Chapter 10: Valuation of Income Properties: Appraisal and the Market for Capital
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Q1) A gross income multiplier can be calculated by dividing the gross income by the sales price.
A)True
B)False
Q2) Which of the following choices represents the main categories of depreciation?
A) Physical,external,functional
B) Physical,economic,locational
C) External,structural,financial
D) Economic,physical,external
Q3) Capitalization rate of newly constructed apartment building will be more than that of relatively old apartment building,which is comparable in all other aspects.
A)True
B)False
Q4) The equity value can be estimated by subtracting debt service from net operating income and dividing this amount by the equity dividend rate.
A)True
B)False
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Chapter 11: Investment Analysis and Taxation of Income Properties
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Q1) A property that produces a level of NOI of $200,000 per year is expected to be sold in year 5 for $2,000,000.If the property was purchased for $2,000,000,what percent of the IRR can be attributed to the operating income only?
A) 10.0%
B) 90.0%
C) 37.9%
D) 63.1%
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
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Chapter 12: Financial Leverage and Financing Alternatives
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Q1) Which of the following is NOT a benefits of a Sale Leaseback of land for investors?
A) It is a way of effectively obtaining 100% financing
B) The lease payments are tax deductable
C) Land can not be depreciated for tax purposes
D) The land value may increase over the holding period.
Q2) Which of the following types of loan is also called a negative amortization loan?
A) Participation loan
B) Accrual loan
C) Convertible loan
D) Interest-only loan.
Q3) A property is financed with a 75% loan at 11.5% over 25 years.The property produces an ATIRR on total investment of 7.34% based on a tax rate of 31%.What can be said about the leverage associated with the property?
A) Negative leverage exists
B) Positive leverage exits
C) No leverage exists
D) Can't tell without knowing the ATIRR on equity
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Chapter 13: Risk Analysis
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Q1) Percentage rent is common in office building leases.
A)True
B)False
Q2) The term "financial risk" refers to the probability of interest rates changing.
A)True
B)False
Q3) When an investor does an investigation when considering acquisition of a property,this is referred to as:
A) Investigation
B) Risk analysis
C) Due diligence
D) Acquisition analysis
Q4) Real estate that is not leveraged does not have interest rate risk.
A)True
B)False
Q5) Examples of real options includes:
A) Valuation of vacant land
B) Valuation of projects with phases of development
C) Valuation of a building that can be renovated
D) All of the above
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Chapter 14: Disposition and Renovation of Income Properties
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Q1) A property worth $16 million can be refinanced with an 80% loan at 9.5% over 20 years.The balance on the current loan is $12,148,566.Loan payments are $113,302 per month.The loan balance in 10 years will be $8,396,769.If the property is expected to be sold in 10 years,what is the incremental cost of refinancing?
A) 9.71%
B) 10.36%
C) 12.42%
D) 14.58%
Q2) 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
Q3) The benefits of equity buildup in a property are lessened over time because with an amortizing mortgage,an investor will lose some tax benefits each year as the interest portion of the payments decreases.
A)True
B)False
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Chapter 15: Financing Corporate Real Estate
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Q1) A company can diversify its business activities by developing,owning and subsequently leasing real estate to other companies.Because of the diversification benefits,shareholder value is always increased.
A)True
B)False
Q2) Which of the following factors does NOT represent an effect of corporate real estate ownership on corporate financial statements?
A) The unrealized source of potential gain from the sale of property is not represented on annual income statements
B) Income represented on accounting statements may underestimate the actual cash flows provided by property
C) The book value of property on the balance sheet may not represent the actual market value.
D) The corporation's overall debt ratio may be reduced,property is carried at book value but financed at market value.
Q3) 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) Which of the following is NOT one of the strategies of developers mentioned in this chapter.
A) To sell and lease back the land
B) Owning and managing after sale
C) Sell after lease-up phase
D) Develop for lease in master-planned development
Q2) Besides an estimate of costs,a construction loan submission package includes many other components.Which of the following would NOT be one of those components?
A) Pro Forma Statement of Cash Flows for an investor's portfolio
B) Pro Forma Statement of Cash Flows
C) Pro Forma Operating Statement
D) Ratio and Sensitivity Analysis
Q3) Permanent funding commitments usually contain many funding contingencies.Which of the following would typically not be one of those contingencies?
A) Approval of all prospective leases
B) Approval of design changes or building material substitution
C) Provisions for gap financing
D) Minimum rent-up requirements
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Chapter 17: Financing Land Development Projects
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Q1) The land development industry is best characterized by which of the following statements?
A) The land development industry is dominated by relatively few national competitors
B) The land development industry is highly fragmented,localized,and extremely competitive
C) Land development and project development are synonymous
D) The production technologies and market risks involved in land development are essentially the same as those in project development
Q2) Which of the following might impact the density of housing in a land development project?
A) The price paid for the land by the developer
B) The terrain of the land
C) The target market's preferences regarding density
D) All of the above
Q3) The release schedule refers to a schedule of expiring leases for existing tenants.
A)True
B)False
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Chapter 18: Structuring Real Estate Investments:
Organizational Forms and Joint Ventures
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Q1) Tax losses can not be allocated to partners in a syndication.
A)True
B)False
Q2) According to IRS rules,interest and real estate taxes incurred during construction of real property improvements must be included in the depreciable basis of the property.
A)True
B)False
Q3) Joint ventures typically involve a large number of individual investors joining together to purchase real estate.
A)True
B)False
Q4) Capital accounts are debited for cash contributed to the partnership and credited for cash distributed to the partner.
A)True
B)False
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Chapter 19: The Secondary Mortgage Market: Pass-Through Securities
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Q1) The investment rating for mortgage backed Bond depends on all but which of the following?
A) Appraised value and DCR.
B) Interest rates in mortgage pool.
C) Extent of over collateralization.
D) Initial price paid for the security.
Q2) When issuing mortgage-backed bonds,the issuer transfers ownership of the underlying mortgage to the investors/bondholders.
A)True
B)False
Q3) If a mortgage pool consists of five 10% FRMs totaling $500,000,five 9% FRMs totaling $450,000 and ten 8% FRMs totaling $750,000,what is the weighted average coupon (WAC)rate?
A) 8.75%
B) 8.85%
C) 9.00%
D) None of the above
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Chapter 20: The Secondary Mortgage Market: Cmos and
Derivative Securities
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Q1) From the issuer's perspective,the use of MBBs and MPTBs should be viewed as a method of debt financing.
A)True
B)False
Q2) Which of the following is NOT a CMO security type?
A) A repeat floater
B) A Z tranche
C) An inverse floater
D) An IO tranche
Q3) 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
Q4) Cash flows remaining after all CMO tranches have been paid off are referred to as REMICs.
A)True B)False
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Chapter 21: Real Estate Investment Trusts Reits
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Q1) The difference between EPS (earnings per share)and FFO (funds from operations)is the interest deduction.
A)True
B)False
Q2) The difference between EPS (earnings per share)and FFO (funds from operations)is
A) Irrelevant
B) Determined by growth of the company
C) Due to depreciation and amortization
D) Due to the number of shares outstanding
Q3) The early growth of the REIT industry in the 1970s was mainly attributed to which of the following?
A) Popularity of mortgage trusts.
B) Deregulation of the industry.
C) Declined performance of other investments.
D) Increased value of real property throughout the country.
Q4) Which of the following REIT types is NOT likely to own real property?
A) Hybrid REITs
B) Mortgage REITs
C) Equity REITs
D) None of the above REIT types are likely to own real property
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Chapter 22: Real Estate Investment Performance and Portfolio Considerations
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Q1) With regards to real estate investments,risks which are associated with the type of property,its location,design,lease structure,etc.can be thought of as:
A) marketability risk.
B) liquidity risk.
C) business risk.
D) interest rate risk.
Q2) You would get the greatest amount of diversification if two securities are
A) positively correlated
B) negatively correlated
C) notcorrelated
D) perfectly correlated
Q3) The optimal combination of securities that provides the greatest amount of return for each level of risk is know as:
A) theexpected frontier.
B) theeconomic frontier.
C) theefficient frontier.
D) none of the above.
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