Question 1

In the context of a lease, percentage rents generally indicate that:

Accepted Answer

A)  The tenant will pay a proportionate amount of rent for his space in comparison to the total net rentable area 
B)  In addition to a base rent, the lessor will receive a percentage of the tenant's cash flow above some break even point 
C)  The tenant will pay a rent that is a certain percentage of the national average 
D)  None of the above 
A)  The tenant will pay a proportionate amount of rent for his space in comparison to the total net rentable area 
B)  In addition to a base rent, the lessor will receive a percentage of the tenant's cash flow above some break even point 
C)  The tenant will pay a rent that is a certain percentage of the national average 
D)  None of the above B

Question 2

Why would a developer be willing to manage a completed project even after it has been sold?

Accepted Answer

A)  The developer knows the project better than other management companies and, therefore, could manage the property more efficiently 
B)  The developer could profit from the lucrative management fees being charges by management companies 
C)  Knowledge of the tenant's needs and the current leasing market might give the developer better insight with respect to future developments 
D)  All of the above 
A)  The developer knows the project better than other management companies and, therefore, could manage the property more efficiently 
B)  The developer could profit from the lucrative management fees being charges by management companies 
C)  Knowledge of the tenant's needs and the current leasing market might give the developer better insight with respect to future developments 
D)  All of the above D

Question 3

Holdbacks are used by construction lenders to be sure that a developer has met all of his or her obligations before all of the funds from the construction loan are given to the developer.

Accepted Answer

A) True 
 B)False  True

Question 4

Which of the following is NOT one of the developer strategies mentioned in this chapter?

Accepted Answer

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 
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

Question 5

Interest on a construction loan is usually paid:

Accepted Answer

A)  Up front at the beginning of the loan 
B)  Periodically over the life of the loan 
C)  In quarterly installments over the life of the loan 
D)  At the end of the loan 
A)  Up front at the beginning of the loan 
B)  Periodically over the life of the loan 
C)  In quarterly installments over the life of the loan 
D)  At the end of the loan

Question 6

Commitments for construction financing are usually contingent on commitments for permanent financing.

Accepted Answer

A) True 
 B)False

Question 7

A bullet loan is a construction loan that, in effect, becomes permanent financing when construction is complete.

Accepted Answer

A) True 
 B)False

Question 8

Developers usually hold back about ___ percent of each progress payment.

Accepted Answer

A)  1 
B)  10 
C)  25 
D)  75 
A)  1 
B)  10 
C)  25 
D)  75

Question 9

In general, developers must get a construction loan before they can line up permanent long-term) financing that will be used once the project is complete and being operated with tenants.

Accepted Answer

A) True 
 B)False

Question 10

One of the risks of project development is "project risks," which are the result of unexpected changes in general market conditions affecting the supply and demand for space.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is the usual progression for a real estate development project?

Accepted Answer

A)  Land acquisition, completion, management, sale, construction 
B)  Land acquisition, construction, completion, management, sale 
C)  Land acquisition, construction, completion, sale, management 
D)  Land acquisition, management, construction, completion, sale 
A)  Land acquisition, completion, management, sale, construction 
B)  Land acquisition, construction, completion, management, sale 
C)  Land acquisition, construction, completion, sale, management 
D)  Land acquisition, management, construction, completion, sale

Question 12

Which of the following common contingencies is NOT usually included with a permanent financing agreement?

Accepted Answer

A)  Completion date for construction phase 
B)  Minimum rent-up requirements 
C)  Materials used in construction phase 
D)  Cleanliness of work area 
A)  Completion date for construction phase 
B)  Minimum rent-up requirements 
C)  Materials used in construction phase 
D)  Cleanliness of work area

Question 13

Which of the following is a "soft cost" of construction?

Accepted Answer

A)  The cost of the architectural drawings 
B)  The cost of pouring the foundation 
C)  The cost of erecting the building 
D)  The cost of finishing the interior space 
A)  The cost of the architectural drawings 
B)  The cost of pouring the foundation 
C)  The cost of erecting the building 
D)  The cost of finishing the interior space

Question 14

Construction loans provide the money to construct a building and are usually provided by life insurance companies or pensions funds.

Accepted Answer

A) True 
 B)False

Question 15

The MOST common method of distributing funds provided by a construction loan is a:

Accepted Answer

A)  Single lump sum of money at the closing of the loan 
B)  Single lump sum of money at the end of the construction project to reimburse the developer for the project's expenses and profit 
C)  Series of payments throughout the construction project to reimburse the developer for costs incurred since the previous payment 
D)  Series of payments throughout the construction project to reimburse the developer for anticipated expenses in the upcoming period 
A)  Single lump sum of money at the closing of the loan 
B)  Single lump sum of money at the end of the construction project to reimburse the developer for the project's expenses and profit 
C)  Series of payments throughout the construction project to reimburse the developer for costs incurred since the previous payment 
D)  Series of payments throughout the construction project to reimburse the developer for anticipated expenses in the upcoming period

Question 16

The demand for retail space should be examined in terms of the characteristics of the tenants demand in a given market.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is FALSE regarding a construction loan?

Accepted Answer

A)  It usually has a lower rate than does permanent financing 
B)  It is also known as interim loan 
C)  Hard costs can usually be financed 
D)  The entire land cost can not usually be financed 
A)  It usually has a lower rate than does permanent financing 
B)  It is also known as interim loan 
C)  Hard costs can usually be financed 
D)  The entire land cost can not usually be financed

Question 18

Which of the following is one reason that construction lenders typically prefer the cost approach to valuation over the income approach?

Accepted Answer

A)  The cost approach provides a more conservative estimate of value 
B)  The cost approach provides a more optimistic estimate of value 
C)  The cost approach is a good indication of the expected value of an income-producing property once construction is complete and it has been leased-up 
D)  The cost approach is a better estimate of actual market value of the project 
A)  The cost approach provides a more conservative estimate of value 
B)  The cost approach provides a more optimistic estimate of value 
C)  The cost approach is a good indication of the expected value of an income-producing property once construction is complete and it has been leased-up 
D)  The cost approach is a better estimate of actual market value of the project

Question 19

$\begin{array}{lrr}
Units&275&300\\
\text { Gross Revenue } & \$ 3,267,000 & \$ 3,564,000 \
\text { Vacancy } & 163,350 & 178,200 \
\text { Expenses } & \underline{1,143,450} & \underline{1,247,400} \
 \text { Net Operating Income } & \$ 1,960,200 & \$ 2,138,400\\
\end{array}$
Cost$~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ \$ 22,000,000 \quad \$ 22,800,000 $
-Consider the table above. An investor-developer demands a return of at least 9 percent on cost. Which of the following statements is TRUE based on the information above?

Accepted Answer

A)  Neither project produces a sufficient expected return 
B)  The 275 unit project produces a sufficient return, but the 300 unit project does not 
C)  The 300 unit project produces a sufficient return, but the 275 unit project does not 
D)  Both projects produce sufficient return, but the 275 unit project produces a higher return than the 300 unit project 
A)  Neither project produces a sufficient expected return 
B)  The 275 unit project produces a sufficient return, but the 300 unit project does not 
C)  The 300 unit project produces a sufficient return, but the 275 unit project does not 
D)  Both projects produce sufficient return, but the 275 unit project produces a higher return than the 300 unit project

Question 20

Generally, as the cost of a site increases, so do the quality and the density of the improvements constructed on it.

Accepted Answer

A) True 
 B)False

Exam 16: Financing Project Development

In the context of a lease, percentage rents generally indicate that:

Why would a developer be willing to manage a completed project even after it has been sold?

Holdbacks are used by construction lenders to be sure that a developer has met all of his or her obligations before all of the funds from the construction loan are given to the developer.

Which of the following is NOT one of the developer strategies mentioned in this chapter?

Interest on a construction loan is usually paid:

Commitments for construction financing are usually contingent on commitments for permanent financing.

A bullet loan is a construction loan that, in effect, becomes permanent financing when construction is complete.

Developers usually hold back about ___ percent of each progress payment.

In general, developers must get a construction loan before they can line up permanent long-term) financing that will be used once the project is complete and being operated with tenants.

One of the risks of project development is "project risks," which are the result of unexpected changes in general market conditions affecting the supply and demand for space.

Which of the following is the usual progression for a real estate development project?

Which of the following common contingencies is NOT usually included with a permanent financing agreement?

Which of the following is a "soft cost" of construction?

Construction loans provide the money to construct a building and are usually provided by life insurance companies or pensions funds.

The MOST common method of distributing funds provided by a construction loan is a:

The demand for retail space should be examined in terms of the characteristics of the tenants demand in a given market.

Which of the following is FALSE regarding a construction loan?

Which of the following is one reason that construction lenders typically prefer the cost approach to valuation over the income approach?

Generally, as the cost of a site increases, so do the quality and the density of the improvements constructed on it.

Real Estate Investment: Basic Legal Concepts

Real Estate Financing: Notes and Mortgages

Mortgage Loan Foundations: the Time Value of Money

Fixed Interest Rate Mortgage Loans

Adjustable and Floating Rate Mortgage Loans

Mortgages: Additional Concepts, Analysis, and Applications

Single Family Housing: Pricing, Investment, and Tax Considerations

Underwriting and Financing Residential Properties

Income-Producing Properties: Leases, Rents, and the Market for Space

Valuation of Income Properties: Appraisal and the Market for Capital

Investment Analysis and Taxation of Income Properties

Financial Leverage and Financing Alternatives

Risk Analysis

Disposition and Renovation of Income Properties

Financing Corporate Real Estate

Financing Land Development Projects

Structuring Real Estate Investments: Organizational Forms and Joint Ventures

The Secondary Mortgage Market: Pass-Through Securities

The Secondary Mortgage Market: Cmos and Derivative Securities

Real Estate Investment Trusts Reits

Real Estate Investment Performance and Portfolio Considerations

Real Estate Investment Funds: Structure, Performance

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