Deck 21: Enhancing Value Through Ongoing Management

Question 1

Suppose an owner is trying to decide whether or not to make improvements to her property.Given the following information,what would be the value added or potential loss if the improvements are undertaken? Current rent per square foot: $8.75,Anticipated rent per square foot: $14.50,Cost of improvements: $250,000,Square feet: 34,000.

A)Gain of $54,500
B)Loss of $54,500
C)Gain of $195,500
D)Loss of $195,500

Answer 1

B

Question 2

Commercial real estate returns are determined in no small part by how well the ongoing management function is performed.Management decisions can be classified into two categories: property management and asset management.Which of the following functions would be considered a primary responsibility of an asset manager?

A)Property acquisitions and dispositions
B)Marketing a property to prospective tenants
C)Maintaining the condition of the property
D)Signing leases

Answer 2

A

Question 3

Unlike many publicly traded stock and bond investments,commercial real estate investments:

A)can be bought and sold in highly liquid markets.
B)yield maximized returns when assets are held for short periods of time.
C)yield returns generated mostly from the asset's net operating income,rather than price appreciation.
D)have going-in and going-out transaction costs that are low (as a proportion of asset value).

Answer 3

C

Question 4

An owner whose property is in a strong market position,where fewer services can be offered to tenants for the same dollar of rental income and where the owner will not lose tenants if the property is undermaintained,is said to participate in a market that has a relatively:

A)elastic demand for space
B)inelastic demand for space
C)competitive demand for space
D)liquid demand for space

Question 5

While some property owners choose to perform both the property and asset manager functions themselves,many commercial property owners choose to employ professional property managers instead.The property manager works under a management contract in which the manager is empowered to serve as the owner's fiduciary.This type of relationship is more commonly referred to as a(n):

A)agency relationship
B)open listing relationship
C)joint-venture
D)correspondent relationship

Question 6

Real estate asset managers perform certain functions that would not be expected of asset managers who deal with stock and bond portfolios.Which of the following functions would you expect both asset managers in real estate as well as stocks / bonds to perform?

A)Find specific assets in which the owners/client can invest
B)Monitor asset performance
C)Negotiate the acquisition price of assets
D)Oversee due diligence and closing

Question 7

Leases are considered the engines that drive property values.Therefore,it should not be surprising that owners of commercial property may seek an independent leasing broker to focus on finding tenants to lease space.In exchange for their services,leasing brokers are paid a commission based on what percentage of the face amount of the lease?

A)0.5 to 1.5%
B)3 to 5%
C)7 to 10%
D)15 to 20%

Question 8

The management agreement provides for a management fee that is usually in the range of 3 to 6% of which of the following measures of property income?

A)Potential gross income
B)Effective gross income
C)Net operating income
D)Income tax liability

Question 9

With a performance-based management contract,an asset manager's fees are tied directly to the rate of return earned by investors on the portfolio of managed properties relative to a benchmark.In private commercial real estate,the choice of benchmarks for performance is limited in large part to return indices provided by which of the following organizations?

A)Standard and Poor's
B)National Association of Real Estate Investment Trusts
C)National Council of Real Estate Investment Fiduciaries
D)Wilshire Associates

Question 10

In contrast to maintenance and repair expenditures,which are operating expenses,the improvement decision generally involves a capital expenditure meant to increase the value of the structure.Which of the following classifications of improvements calls for the restoration of a property to satisfactory condition without changing the floor plan,form,or style of the structure?

A)Rehabilitation
B)Remodeling
C)Adaptive reuse
D)Conversion

Question 11

The lease is a contract between the owner and the tenant that transfers exclusive use and possession of the space to the tenant in return for rent or other consideration.In this arrangement,the owner is referred to as the:

A)lessor
B)lessee
C)agent
D)benchmark

Question 12

Both owners and managers must carefully designate their responsibilities in the management agreement.In a management agreement,all of the following would typically be responsibilities of the property manager EXCEPT:

A)Maintenance of financial accounts for money collected from tenants
B)Liability
C)General property management
D)Reports on property performance

Question 13

Despite the magnitude of their real estate holdings,many non-real estate corporations have historically expended little effort to manage these assets effectively.Recently,the development of which of the following markets has helped to quell concerns related to this issue?

A)Commercial mortgage backed securities (CMBS)
B)Sale-leaseback
C)Tenancy-in-common (TIC)
D)Installment sale

Question 14

Maintenance and repair of a property is an ongoing process that can be divided into four principal categories.Which of the following classifications includes ordinary repairs to a building on a day-to-day basis (e.g.repairing a broken window,fixing a leaking roof)?

A)Custodial maintenance
B)Corrective maintenance
C)Preventive maintenance
D)Deferred maintenance

Question 15

Given the following information,calculate the leasing agent's commission in dollar terms.Lease Term: 10 years,Monthly Rent: $5,000,Commission: 3%.

A)$150
B)$1,500
C)$1,800
D)$18,000

Question 16

For residential properties,the ratio of prospective rent to gross monthly income is a valuable screening tool in judging a potential tenant's ability to fulfill rent obligations.Generally,this ratio should not exceed:

A)10%
B)20%
C)30%
D)40%

Question 17

When leasing nonresidential properties,owners would prefer to rent exclusively to high quality tenants.Such owners will tend to seek out companies whose general debt obligations are rated "investment grade" by one of more of the U.S.rating agencies.These potential tenants are more commonly referred to as:

A)tenant reps
B)credit tenants
C)tenant mix
D)in-house leasing agents

Question 18

Concerned with a potential information asymmetry problem,state legislators have been proactive in passing legislation that protects the rights and interests of tenants within which of the following property types?

A)Office
B)Retail
C)Industrial
D)Apartment

Question 19

When property managers are looking to secure a mix of tenants for which "the whole is greater than the sum of its parts," or in other words a group of tenants that shares similar characteristics such that the experience of living together is mutually beneficial,they are seeking what is referred to as:

A)permanence potential
B)synergism
C)rehabilitation
D)adaptive reuse

Question 20

While college-level courses are not widely available,a number of professional and trade organizations exist in the field of property management.Which of the following certifications awarded by the Institute of Real Estate Management is aimed at individuals who manage larger,residential,office,industrial,or retail properties?

A)Certified Property Manager (CPM)
B)Accredited Resident Manager (ARM)
C)Real Property Administrator (RPA)
D)Member of Appraisal Institute (MAI)