Exam (elaborations)
REE 3043 Quiz 4
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Exam of 31 pages for the course REE 3043 at REE 3043 (REE 3043 Quiz 4)
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REE 3043 QUIZ 4 QUESTIONS ANDJ
ANSWERS
C Different financing requirements usually are involved in the various phases of a property's life. Which
of the following types of loans is used to finance improvements to the land, such as sewers, streets and
utilities?
A. Bridge loans
B. Land development loans
C. Land acquisition loans
D. Construction loans - B. Land Development Loans
An interest-only balloon mortgage loan is commonly referred to as a(n):
A. Land acquisition loan
B. Mini-perm loan
C. Bullet loan
D. Mezzanine loan - C. Bullet Loan
Which of the following terms refers to a written agreement that binds the lender to make a loan to the
borrower provided the borrower satisfies the terms and conditions of the agreement?
A. Loan document
B. Loan application
C. Loan underwriting
D. Loan commitment - D. Loan Commitment
When comparing Commercial Loans versus Home Loans, which of the following statements is least
correct?
,A. Similar to Home Loans, the legal borrower in a Commercial loan is often a single asset corporation.
B. Commercial mortgages and notes are not as standardized as Home Loans.
C. In contrast to borrowers of Home Loans, the Commercial mortgage borrowers are often shielded
from personal liability.
D. Commercial mortgage documents are longer and more complex. - A. Similar to Home Loans, the legal
borrower in a Commercial loan is often a single asset corporation
If mortgage rates decline significantly, borrowers may decide to prepay the principal on their loan even if
they face prepayment penalties. One way that lenders protect themselves from prepayments in such
circumstances is to require the borrower to pay the lender the present value (PV) of losses due to
prepayment. This process is referred to as:
A. Curtailment
B. Defeasance
C. Yield-maintenance
D. Lockout - C. Yield-maintenance
While floating rate mortgage loans may offer lower interest rates to borrowers than comparable fixed-
payment mortgages, floating-rate loans may increase a lender's exposure to which of the following risks
since borrowers may not be able to continue to service the debt if payments on the loan increase
significantly?
A. Liquidity risk
B. Pipeline risk
C. Default risk
D. Interest rate risk - C. Default risk
Which of the following statements is least correct?
A. In a LP (Limited Partnership), the general partner(s) is(are) subject to unlimited liability.
B. In a LP (Limited Partnership), the general partner(s) manage(s) the operations of the limited
partnership.
C. Similar to LPs (Limited Partnerships), LLCs (Limited Liability Companies) permit only the general
partner to participate in management.
, D. In contrast to LPs (Limited Partnerships), LLCs (Limited Liability Companies) permit all owners to have
limited liability. - C. Similar to LPs (Limited Partnerships), LLCs (Limited Liability Companies) permit only
the general partner to participate in management
A commercial mortgage lender can reduce their _______________________ by issuing floating
(adjustable) rate mortgages.
A. Liquidity risk
B. Default risk
C. Financial risk
D. Interest rate risk
E. Regulatory risk - D. Interest rate risk
Which of the following statements regarding U.S. commercial real estate equity and debt ownership and
other U.S. assets, as of 2011, is least correct?
A. Public commercial real estate debt, Commercial Mortgage Backed Securities (CMBSs), totaled
approximately $845 Billion while Privately held commercial real estate debt totaled approximately
$2.402 Trillion.
B. U.S. Owner-occupied housing totaled about $26 Trillion, about 4 times the total value of all U.S.
Commercial Real Estate.
C. Public REITs owned approximately $404 Billion of commercial real estate equity while Private
investors owned approximately $2.850 Trillion of Commercial real estate equity.
D. The total value of all Commercial Real Estate was approximately $6.5 Trillion. - B. U.S. Owner-
occupied housing totaled about $26 Trillion, about 4 times the total value of all U.S. Commercial Real
Estate.
Which of the following statements is not correct?
A. In a tax-deferred exchange, real property cannot be exchanged for a partnership interest.
B. Under a revenue procedure released in March of 2002 by the IRS, taxpayers can exchange an interest
in real property for a TIC (Tenancy in Common) investment.
C. Taxpayers cannot exchange an interest in real property for a Tenancy in Common (TIC) investment.
D. In a tax-deferred exchange, the seller must (1) identify replacement property within 45 days and (2)
take title to replacement property within 180 days. - C. Taxpayers cannot exchange an interest in real
property for a Tenancy in Common (TIC) investment
, Which type of loan is NOT suitable for long-term commercial financing?
A. Construction loans
B. Fully amortizing loans
C. Partially amortizing loans
D. Interest-only loans - A. Construction loans
Which of the following statements regarding UPREITs and related REIT structures is least correct?
jA. jUPREITs jare ja jform jof jREIT jstructure jwhich jfacilitate jtax-deferred jexchanges jinvolving jthe
acquisition jby jREITs, jof jproperties jheld jin jLPs jor jLLCs.
j
B. jIn ja jtypical jUPREIT, jpartners jin jan jexisting jpartnership j& ja jnewly-formed jREIT jbecome jpartners jin
j
ja jnew jLP jtermed jthe j"operating jpartnership" j(OP).
C. jREITs jcan't jacquire j(as j"like-kind" jtax-deferred jexchanges) jLP jor jLLC jinterests jfrom jproperty
j
jowners jin jexchange jfor jcash jor jstock j(or jeven jRE), jbecause jsuch jtransactions jwould jviolate jthe
jrequirements jof jSection j1031 jof jthe jInternal jRevenue jCode j(IRC) jallowing j"like-kind" jtax-deferred
jexchanges.
jD. jOwners jtransferring jLP jinterests jinto jan j"operating jpartnership" j(OP) jreceive junits jin jthe jOP, jthus
triggering ja jtaxable jsale.
j
E. j"UPREIT" jstands jfor jan j"Umbrella jpartnership jREIT" jstructure. j- jD. jOwners jtransferring jLP jinterests
j
jinto jan j"operating jpartnership" j(OP) jreceive junits jin jthe jOP, jthus jtriggering ja jtaxable jsale.
Given jthe jfollowing jinformation, jcalculate jthe jloan-to-value jratio jof jthis jcommercial jloan:
j
Estimated jnet joperating jincome jin jfirst jyear:
$150,000
Debt jservice jin jfirst jyear:
$100,000
Loan jamount:
$1,000,000
Purchase jprice:
$1,300,000
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