Exam (elaborations)
REE 5305 (1)
Exam of 8 pages for the course REE 5305 at REE 5305 (REE 5305 (1))
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REE 5305Expense stops protect the lessee from unexpected changes in market rents. - ANS-False
A gross lease is one in which the tenant only pays rent, and the owner of the property pays the
operating expenses and provides all services. - ANS-True
The use of a CPI index in a lease contract shifts risk to the tenant. - ANS-True
Free rent is a concession that a building owner may offer. - ANS-True
The existing stock of space cannot be adjusted in the short run, but can be increased or
decreased in the long run. - ANS-True
Which of the following is NOT considered to be an office or retail property? - ANS-Warehouse
Which of the following describes the function of an expense stop in a lease? - ANS-Expenses
above the stop are paid by the tenant
Which of the following is TRUE for a net lease? - ANS-All expenses are paid by the tenant
Which of the following tends to lower effective rents? - ANS-Concessions
The price a potential tenant must pay to lease a specific type of real estate under the current
economic conditions is: - ANS-Market Rent
Which of the following would be considered as expense pass throughs in a lease? -
ANS-Property Taxes
A manufacturing business is contracting to lease a large, open building and is seeking to add
partition walls and a large air conditioning unit in order to accommodate its specific needs. What
type of lease is the building owner likely to want to agree to? - ANS-Triple Net Lease
In a compounding problem, you must know all four of the variables to solve for the fifth variable.
- ANS-True
Your friend just won the lottery. He has a choice of receiving $50,000 a year for the next 20
years or a lump sum today. The lottery uses a 15 percent discount rate. What would be the lump
sum amount your friend would receive? - ANS-312,967
The future value of a single deposit of $1,000 will be greatest when this amount is compounded:
- ANS-Monthly
, Which of the following statements regarding the sales comparison approach to appraisal is
TRUE? - ANS-The comparable sales must involve transactions between unrelated individuals.
Consider a building with a very long economic life. Assume at the end of Year 6, NOI will be
$80,000 and is expected to grow at a rate of 2 percent per year. Your company's required rate of
return is 12 percent. As part of your analysis, you must calculate the reversion value (REV) at
the end of Year 5, which would be: - ANS-800,000 - 80,000/(12%-2%)
Regarding the value of a property, an appraisal: - ANS-Estimates value
A comparable property has a feature that is superior to the subject property. What adjustment
would be made in the sales comparison approach to value? - ANS-Value of the feature would be
subtracted from the sales price of the comparable property
A property produces a first-year net operating income of $24,000. Because of the long
economic life of the building, the income is considered as a perpetuity that will grow by 2.5
percent per year. Using a discount rate of 9.5 percent, the property value is estimated at: -
ANS-$24,000/(9.5% − 2.5%) = $342,857
Capitalization rates will differ from yield rates when the income is expected to __________ over
time. - ANS-increase, decrease, or do both
Which of the following income capitalization techniques is based on the principle that buyers will
not pay more for a property than the present value (PV) of all future net operating incomes
(NOI)? - ANS-Discounted cash flow method
The principle that an informed purchaser would not spend more for a piece of real estate than
the cost to purchase the land and the cost to construct a structure provides the rationale for
which of these valuation methods? - ANS-Cost approach
The equity dividend rate is an accurate measure of investment yield because it considers future
cash flows. - ANS-False
The debt coverage ratio is used by lenders to indicate the riskiness of a loan. - ANS-True
When calculating IRR, the projected cash flows are discounted such that they will equal the
initial investment amount. - ANS-True
Residential property is depreciated over 27.5 years whereas nonresidential property is
depreciated over 39 years. - ANS-True
The deductibility of depreciation in calculating taxable income will usually cause the effective tax
rate to be lower than the actual tax rate. - ANS-True
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