Deck 1: Real Estate Space and Asset Markets

Question 1

Which of the following is an example of the private equity market?

A) The commercial real estate property asset market.
B) The stock market.
C) The commercial mortgage market.
D) The money market.

Answer 1

A

Question 2

Long-run equilibrium in a DiPasquale-Wheaton "Four-Quadrant Model" 4QM) is found by:

A) The triangle connecting the current quantity of built space, the current price of property per square foot, and the current rent per square foot.
B) The square that equates supply and demand.
C) The rectangle with vertical sides and horizontal top & bottom whose four corners just touch the four binary relationship lines in each quadrant.
D) The diamond whose four corners are on the four axes at the current prices and quantities.

Answer 2

C

Question 3

Briefly describe about the following terms
MSA

Answer 3

MSAs, short for "metropolitan statistical areas", encompass a central city and its surrounding suburbs. Since an MSA tends to be relatively integrated economically, culturally, and socially, it is often used as the primary geographic units of space market segmentation in real estate.

Question 4

Other things being equal, which would have the lowest cap rate?

A) A building with short-term leases in a declining market.
B) A building with long-term leases in a declining market.
C) A building with short-term leases in a stable market.
D) A building with long-term leases in a growing market.

Question 5

Equilibrium between current supply and demand in the space market is reflected by:

A) The prices rents) and occupancy observed in the market.
B) The amount of new construction in process in the market.
C) The volume of properties bought and sold during the year.
D) A constant long-run marginal cost function.

Question 6

In a real estate market. "constrained supply", or rising real Long-Run Marginal Cost upward-sloping supply curve), is generally caused by:

A) Inflation.
B) Technological improvements in the construction industry.
C) Scarcity of buildable land due to geographic or regulatory constraints.
D) Tenant requirements for more lavish accommodations.

Question 7

In 2000 rents were $18/SF and 10 Million SF of space were occupied in a certain market. By 2006 12 Million SF of space were occupied, and rents were $19/SF, however, the CPI inflation) had increased more than 20 percent over this period. In this market, it appears that:

A) Demand is growing while supply is constrained.
B) Demand and supply are both growing at about the same rate.
C) Demand is either not growing, or not growing as fast as supply.
D) Demand increased in response to higher real rents.

Question 8

In order for the real estate system to function more efficiently and effectively, it is important for:

A) Investors to try to forecast the economy, the space market, development activity, and the capital market.
B) Potential tenants to make their space needs explicitly known to developers.
C) Government regulators not to place too strict requirements on real estate developers.
D) Landlords to treat tenants fairly.

Question 9

Use the following information to answer the next 2 questions.
Suppose demand for apartments in a metropolitan area is: #Apt.units=60,000 +0.30)# households)-80)*$Rent/unit/mo.)
In the question above, suppose the number of apartment units remained at 88,000 while the number of households grew from 200,000 to 220,000. To what level would real rents rise?

A) $500
B) $475
C) $450
D) $425
E) Cannot be determined from the information given.

Question 10

Use the following information to answer the next 2 questions.
Suppose demand for apartments in a metropolitan area is: #Apt.units=60,000 +0.30)# households)-80)*$Rent/unit/mo.)
If developers increase the number of apartment units from 88,000 to 100,000, over a period of several years, to what level will real rent fall in the market below the original $400/mo level if the population remains stable at 200,000 households?

A) $350
B) $300
C) $250
D) $200
E) Cannot be determined from the information given.

Question 11

If it costs $300/SF to develop a new class A office building and the annual net rent for office space is $22.5/SF, what is the cap rate that would make additional development feasible? Also, if office buildings are currently selling at an 8% cap rate, what would be the replacement cost rent level?

Question 12

Which are the two fundamental markets in commercial real estate?

A) The space market and the asset market.
B) The space market and the money market.
C) The construction market and the land market.
D) The asset market and the stock market.

Question 13

In the absence of foresight among asset market participants, a growth in demand for real estate assets in the capital market, holding demand in the space usage market constant, will produce which of the following short-run and long-run effects?

A) A short-run increase in property asset prices followed by a subsequent drop.
B) A short-run decrease in property asset prices followed by a subsequent rise.
C) A short-run increase in rents followed by a subsequent drop.
D) A short-run decrease in rents followed by a subsequent increase.

Question 14

Briefly describe about the following terms
segmented market

Question 15

The "real estate system" consists of the following three major components:

A) The space market, the capital market, and the mortgage industry.
B) The space market, the asset market, and the development industry.
C) The public equity market, the private equity market, and the debt market.
D) The capital market, the government, and land.

Question 16

If the cap rates prevailing in a given market are 10.5%, then how much would you expect a property to sell for in that market if its annual net income were $50,000?

A) $5,250.
B) $50,000.
C) $476,190.
D) $525,000.

Question 17

The term "real property" refers to:

A) Financial capital as opposed to physical capital.
B) Long-lived personal property, such as automobiles, musical instruments, works of art.
C) Land or built space.
D) Property valued net of inflation.

Question 18

Briefly describe about the following terms
the 'replacement cost' level of rent

Question 19

Which statement below is true?

A) The supply side of the space market consists of investors.
B) The demand side of the space market consists of investors.
C) The supply side of the space market consists of potential tenants.
D) The demand side of the space market consists of potential tenants.

Question 20

Which of the following statements is true about equilibrium real rents net of inflation) in the space market over time?

A) An increase in demand will necessarily produce an increase in rents, but a decrease in demand will not necessarily produce a decrease in rents.
B) An increase in demand will not necessarily produce an increase in rents, but a decrease in demand will necessarily produce a decrease in rents.
C) An increase in supply will necessarily produce an increase in rents, but a decrease in supply will not necessarily produce a decrease in rents.
D) An increase in supply will not necessarily produce an increase in rents, but a decrease in supply will necessarily produce a decrease in rents.

Question 21

The basic geographic unit in real estate space markets is typically:

A) The country
B) The state
C) The county
D) The metropolitan area MSA)

Question 22

Real estate space markets are segmented for all of the following reasons except:

A) Space users require specific locations and types of buildings.
B) Built space is fungible.
C) Buildings cannot move.
D) It is difficult and expensive to change buildings from one usage type to another e.g., from office to apartment).

Question 23

If properties in a certain market are typically selling for prices of $100/SF and they are yielding current annual net income of $8/SF, then the typical "cap rate" prevailing in this market is:

A) $12.50.
B) $8/SF.
C) 8%.
D) Cannot be estimated from the information given.

Question 24

The "kink point" in the real estate space supply function occurs at:

A) The current quantity of built space and the "replacement cost" rent.
B) The maximum quantity of built space allowed by zoning laws and geographical constraints.
C) The current quantity of built space and the current rent.
D) The rent that provides a cap rate equal to the mortgage interest rate.