Exam 8: Present Value Mathematics for Real Estate

The term "Gross lease" means:

An "Expense Stop" provision in a lease:

Based on the following information, develop a front door "Simple Financial Feasibility Analysis" SFFA) for this project estimating the required minimum market gross rent per SF that will support development. • 40,000 NRSF office building project. • Acquisition & construction cost = $1,500,000; • Estimated operating costs to landlord) = $100,000/yr. • Projected stabilized occupancy = 95%. • Permanent loan available on completion @ 9% interest-only loan) with 130% debt service coverage requirement on the net operating income, and 75% maximum loan-to-value ratio. 1500000 X .75 = 1125000 Max loan 1125000 X .09 = 101250/yr debt svc 101250 X 1.3 = 131625 Required NOI 131625 + 100000 = 231625 Required EGI 231625 / .95 = 243816 Required PGI 243816 / 40000 = $6.10 / SF Gross rent required.

In option valuation theory all of the following are true except:

According to the Graaskamp model, what are the four "disciplines" or professional perspectives involved in the real estate development process?

Suppose a construction project anticipates end-of-month draws of $400,000, $300,000, and $600,000 consecutively. What will be the balance owed at the end of the third month if the interest on the loan is 7% per annum compounded monthly), and no payments of either principal or interest are required during the construction period?

The major advantage of real option theory over the decision tree approach for analyzing land value and development decision making is:

All of the following distinguish the typical real option on land development from the typical financial option on securities, except:

The main difference between applying real option theory to real estate development and applying it to many typical industrial corporate capital budgeting problems is that:

Consider the following situation in which the market's expected return to investment in vacant land is 15% per annum: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ HBU: Today Next Yr. known) expected) Value of Completed Built Property \ 500 \ 540 Constr \& Dvlpt Cost exclu land) \ 400 \ 420 NPV immediate construction) \ 100 \ 120 -In the above situation,

In the classical construction loan:

All of the following relate most directly to the benefit side of the real estate development NPV equation, except:

Suppose a lease has a 75% CPI-Adjustment each year. If last year's rent was $20/SF and the CPI has increased from 155 to 161, what is the new rent this year?

Other things being equal, call option value is greater under all of the following conditions except:

Consider the following situation in which the market's expected return to investment in vacant land is 15% per annum: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ HBU: Today Next Yr. known) expected) Value of Completed Built Property \ 500 \ 540 Constr \& Dvlpt Cost exclu land) \ 400 \ 420 NPV immediate construction) \ 100 \ 120 -In the above situation, which of the following is not true:

The NPV investment decision rule is applicable even in the case of a real option, such as a real estate development investment decision, because:

What is the Effective Rent under 10% discount rate assumption) for a 7-year net lease with rent fixed at $20/SF, in which the landlord agrees to give the tenant one year free rent up front and to pay for $10/SF worth of tenant improvements?

It is possible conceptually to distinguish two underlying sources of option-based land value over and above the current difference between the value of the best building that could currently be built on the site and the construction cost exclusive of land) of that building, the underlying reasons why it makes sense to wait before immediately commencing a positive-NPV construction:

The classical model of land value as a "real option" is what type of option model?

According to real option theory, even if construction were instantaneous, it might be optimal not to immediately build a project whose value currently exceeds its construction cost, because: