Real Estate 415 - Final Exam 2024/2025 with 100% correct answers
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Real Estate 415 - Fi
Institution
Real Estate 415 - Fi
DCF correct answersForecast of future cash flows
- assume a sale at the end of the holding period
- based on direct cap of future noi
Discount rate correct answersTotal return
Total return correct answersIncome return and growth/gain
Direct Cap correct answersapproximates long-run norma...
Total return correct answersIncome return and growth/gain
Direct Cap correct answersapproximates long-run normalized rental income
In the direct capitalization approach, other than the current income, every other future assumption
about the investment is implicitly reflected (or "buried") in the cap rate. correct answersTrue
Two identical properties, both fully occupied with long-term tenants, except that...
Property A - Rents increase 3% per year
Property B - Rents increase 2% per year correct answersProperty A would have a lower cap rate
Two identical properties, except that...
• Property A - built with shorter lived components, say shingled roof, painted wood siding, asphalt
parking
• Property B - built with longer lived components, say steel roof, aluminum siding, concrete parking
correct answersProperty B would have a lower cap rate
Property A - property has stabilized leases at market rental rates
Property B - property has low occupancy rate and below market leases expiring at the end of Year 1, but
has signed leases to fully occupy the building at market rents at the beginning of Year 2 with no leasing
,capital expenses (i.e. not tenant improvement or leasing costs) correct answersProperty B would have a
lower cap rate
Value correct answersNOI / Cap rate
Are Terminal Cap Rates typically higher or lower than going in cap rates? correct answersHigher
Which measure reflects a "current income return" on an investment? correct answersCap Rate
Cap rate with Capex correct answersr - g + (cap ex/v)
Cap rate correct answersDiscount rate - growth rate
R in cap rate correct answersTotal required return
G correct answersExpected cash flow growth
Income cap approach is most most applicable when? correct answers- reflects buyers and sellers analysis
- income producing property
Least applicable correct answers- Not income producing
- Typically acquired for owner occupancy
Holding period returns correct answers2 cash flow, all in and all out
Periodic returns correct answersTotal return between 2 periods of time
Components to return correct answers- Income return
- Capital return
, Total Return correct answersIncome Return + Growth/Appreciation Return
Multi period returns correct answerscash flows occur at many time periods
-Vt not known
- Uses IRR
Growth component to returns correct answersAppreciation or capital return
Income component to returns correct answersCash flow from operations
Ex ante returns correct answers-Expected returns, looking forward in time
- Sum of expected cash flows
Ex post correct answersHistorical returns
- not appropriate for valuation
Return expectations correct answersprice investors pay for properties determine their expected returns
because future cash flows are independent of the prices investors pay today for the properties
the greater the price paid or invested in an assete correct answersthe lower the return
The greater the return correct answersthe lower the price
What area measure is most relevant in the income approach for a multi-tenant rental property? correct
answersLeasable area (e.g. gross leaseable, net rentable, etc.)
Assuming a 75% renewal probability, if the tenant improvement cost is $5 psf if the current tenant
renews or $20 psf for a new tenant, what is the weighted average, or speculative renewal cost for tenant
improvements? correct answers0.75 * 5 + 0.25 * 20 = 8.75
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