PL 4310 FINAL EXAM Review edited

Transcription

real estate finance I
FINAL EXAM REVIEW
Sections A & B
SECTION A QUES 1
¤  A lease has a 100% CPI-Adjustment each year and the CPI
for the past two years has been stable at 3%/year. If the
lease was started 3 years ago and Year 1 base rent was $20/
SF what is the total rent (Base + Escalation) in this Year 3?
¤ 
¤ 
¤ 
¤ 
$20.60
$21.20
$21.22
$21.60
Copyright ©: Richard Peiser & David Hamilton Professional Real Estate Development 3rd Ed;, Geltner/ Miller/Clayton/Eichholtz Real
Estate Finance 2007;Brueggeman/Fisher, Real Estate Finance & Investments 2011, modified by Dr P Derrington 2015
9/12/1
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2
SECTION A QUES 2
¤  The adjusted basis of a property can be defined as:
¤  Sale Proceeds – original cost + accumulated depreciation
¤  Original cost + capital improvements – mortgage balance
¤  Original cost + capital improvements - accumulated
depreciation
¤  Original cost - capital expenditures - mortgage balance sales costs
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3
SECTION A QUES 3
¤  You have an investment hurdle rate of 10% and you buy a
small store for $500,000 that produces a level of NOI of
$50,000 per year. Then, after 5 years you sell it for $1,000,000,
doubling your money! What portion of your unlevered total
return can be attributed to the property’s appreciation?
¤ 
¤ 
¤ 
¤ 
10%
62%
64%
100%
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4
SECTION A QUES 4
¤  The following five questions relate to your recent acquisition of a $1M office
building of which the land component was 20%. In Year 1 the operating NOI is
$130,000, and $30,000 is spent on capital improvements. You have an Interest-only
loan with 80% LTV and a rate of 7%.
¤  What is the Before-tax Cash Flow to the equity investor (BTCF)?
¤ 
¤ 
¤ 
¤ 
$23,487
$42,168
$44,000
$74,000
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5
SECTION A Ques 5 & 6
¤  What is the Taxable Income for the equity investor?
¤ 
¤ 
¤ 
¤ 
$23,487
$48,359
$51,655
$53,487
¤  What is the annual Taxation Expense if the equity investor
has an income tax rate of 35%?
¤ 
¤ 
¤ 
¤ 
$8,221
$16,926
$18,079
$18,721
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6
SECTION A Ques 7 & 8
¤  So, what is the annual after-tax cash flow (ATCF) to the
equity investor?
¤ 
¤ 
¤ 
¤ 
$15,267
$24,089
$25,279
$57,074
¤  What is the cash-on-cash return?
¤ 
¤ 
¤ 
¤ 
7.6%
12.0%
12.6%
28.5%
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7
SECTION A Ques 9
¤  A property that produces a consistent NOI of $200,000 per
year is expected to be sold in year 5 for a net profit of
$1,000,000. If the Discount Rate is 11%, which type of
investor would be more interested in this property?
¤ 
¤ 
¤ 
¤ 
Someone who is return-driven.
Someone who does not need current income.
Someone living on the annual cash flow.
Cannot determine from the information given.
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SECTION A Ques 10
¤  A restaurant is for sale for $200,000. It is estimated that the
restaurant will earn $20,000 a year flat for the next 5 years. At the
end of 5 years, it is estimated that the restaurant will sell for
$220,000. Which of the following would be MOST LIKELY to occur if
the investor’s required rate of return is 12% percent?
¤  Investor would pursue the project.
¤  Investor would not pursue the project.
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SECTION A Ques 11
¤  How would the investor more satisfactorily meet the 12%
required rate of return objective, assuming the reversionary
cap rate is the same irrespective of the timing of the sale?
¤ 
¤ 
¤ 
¤ 
Investor would hold the investment for only 3 years.
Investor would hold the investment for 10 years.
Investor would look to an alternative investment opportunity.
Not enough information provided.
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SECTION A Ques 12
¤  You buy an industrial property that has a triple net lease with a Year
1 base rent of $80,000, no escalations, but with a step-up after 5
years to compensate for the anticipated inflation over the
intervening years at an average rate of 3%. What would be the
reset rate of the base rent?
¤ 
¤ 
¤ 
¤ 
$82,400
$82,742
$92,742
$92,929
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11
SECTION A Ques 13
¤  Which of the following statements regarding equity is
TRUE?
¤  The amount of equity an investor has in a property may
change over time if the property value and loan balance
changes
¤  The amount of equity an investor has in a property depends
on the value of the equity the investor has in his or her other
investments
¤  The outstanding balance on loan on the property does not
affect the amount of equity an investor has in the property
¤  All of the above
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12
SECTION A Ques 14
¤  If a property carries a 7% loan and the required levered
return of 11%, then what is the required return on the
equity investment with a 50% Loan/Value Ratio?
¤  7%
¤  11%
¤  15%
¤  19%
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13
SECTION A Ques 15
¤  Which of the following is FALSE regarding interest only
loans?
a.  They usually have balloon payments
b.  They have greater amortization than conventional loans
c.  They may result in more cash flow to the investor
d.  They may allow for a lower DCR
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14
SECTION B Ques 1
¤  A borrower takes out a 20-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 will be reset annually
with a 2% annual rate cap. On the first reset date, the composite
rate is 6%. What would the Year 3 monthly payment be?
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SECTION B Ques 2
¤  On an office building, the NOI is $40,000; there are $5,000 in tenant
improvement expenditures paid for by the landlord; there is a
$200,000 interest-only loan at 8 percent annual interest; the
depreciable cost basis of this property is $390,000 and the owner's
tax rate is 35%. What is the After-Tax Cash Flow (ATCF)?
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SECTION B Ques 3
¤  A borrower is purchasing a property for $2M and can
choose between two possible CPM alternatives. The first is a
70% LTV for 20 years at 7% interest and the second is a 75%
LTV for 20 years at 7.5% interest. Assuming the loan will be
held to maturity, what is the extra cost (pre-tax) of borrowing
the extra money?
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SECTION B Ques 4
¤  Suppose a lease has a 50% CPI-Adjustment each year i.e.
the escalation. If last year's rent was $20/SF and the
Consumer Price Index (CPI) has increased from 155 to
161, what is the new rent this year?
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18
SECTION B Ques 5a
¤  Your office property is sold for $5,000,000 with selling costs of 6% of
the sales price. The mortgage of $4M has a balance at the time of
sale is $3,600,000. The property was purchased 5 years ago for
$4,500,000 with the land component worth $600,000. You spent a
total of $70,000 on capital expenditure (including major upgrades,
brokers commission and tenant improvements).
¤  What is your after-tax cash flow from the sale?
¤  Depreciation recapture tax due
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SECTION B Ques 5b
¤  Capital gains tax (at 15% rate) on appreciation
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SECTION B Ques 5c
¤  ATCF from sale
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SECTION B Ques 6
¤  A potential development of a small NYC office building will
deliver 100,000 rentable sf. The land cost is $5M and your
anticipated all-in construction cost is $300/sf. From your
experience with this type of property you estimate operating
expense to be $15/sf. If your return hurdle for such a
development is 10%, what is the required minimum market
gross rent per SF that will support the development project?
9/12/1
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22

PL 4310 FINAL EXAM Review edited

Transcription

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