Real estate technical questions Flashcards

Real estate technical questions Flashcards income approachrelies on calculating cap rate.= you would be given the rental income per month or some measure and use that to estimate the value of the house.

• CMBS structurea. underlying loans that get securitized into CMBS include

loans for properties such as apartment complexes and buildings, factories, hotels, office buildings and shopping malls.b. CMBSs are a group of commercial loans on these property types that are bucketed into various tranches.Though these securities are customized, generally they have three or four tranches.i. tranches are typically ranked for senior, or highest quality, to lower quality.1. Highest quality tranches will receive both interest and principal payments and have the lowest risk.2. Securities are structured so as the tranches go down in rank, they take on more risk and are designed to absorb most of the potential losses that can occur over the life of the security.3. Lowest tranche in a CMBS's structure will contain the riskiest loans of the portfolio and possibly speculative loans.why do institutional investors invest in commercial real estate as part of a mixed-use portfolio CRE offers many different sectors that make it easy to diversity investments. They tend to be more stable investments.LTV compared to DSCRi. LTV is more of a balance sheet thing.ii. Measures your leverage on a property.iii. Looks at your total assets and liabilities, which would impact how much you can put down on loan.1. How much debt you are putting in versus equity cost approachstates that the property is only worth what it can reasonable be used for. It is estimated by summing the land value and the deprecated value of any improvements.If you had to decide a project's merit on basis of one performance indicator what would you use? (lending) debt service coverage ratio- net operating income/ total debt service.-measures of cash flow available to pay current debt obligation.-good indicator for lending because you always need to know the risk that you are taking on with a loan.Name 3 regulations that REITS faceNeed to have shares fully transferrable.-have minimum of 100 shareholders after its firsts year as a REIT.- have no more than 50% of its shares held by 5 or fewer individuals during the last half of the taxable year.- derive at least 95% of its gross income from such real estate sources and dividends or interest from any source. -Have no more than 50% of shares held by 5 or fewer individuals during the last half of the taxable year.

officeo office buildings range from large multi-tenant structures in city business districts to single- tenant buildings (like a hospital's medical office building).o Rent and valuations are influenced by employment growth, a region's economic focus (finance and high tech centers need more office space), and productivity rates.o Individualized tenant improvements are usually not very involved, but credit quality of tenants is key; re-leases of office space typically require some lead to consummate.o Office properties typically have longer term leases that can lag current market lese rates, so that "steps up" (or steps downs) of rental rates are not infrequent when leases expire.o Because these buildings are often leased to businesses (not just individuals), the tenants often demand special features in the leases, including rights of first refusal to rent contiguous space, signage rights, or even building purchase options.If you had to decide a project's merit on basis of one performance indicator what would you use? (Equity) Equity multiple=when looking at equity side when you want quick money.total asset value/ total net equity.-measures leverage- you want a low equity multiple that would indicate that you aren't relying on debt completely to finance asset.(lower financial leverage, which is better)

• Walk me through a pro forma, ending at NOI potential gross income- vacancy allowance+ other income

to arrive at your effective gross income. then subtract your operating expenses from EGI to get NOI 1.) Explain how Brexit impacts commercial real estateless investments in Eurozone, so there may be a positive impact on U.S CRE investments.- increase in inflow of global funds to US markets as they are considered more stable and secure.-The value of sterling dropped relative to the U.S dollar, so U.S goods are worth more.-U.S treasury rates dropped to record low. (low treasury rates keep inflation steady and low).-If t-bills give high rates people will buy and decrease money supply in economy, so money will be more scarce and bring down inflation Triple Net leaseAllows you to pass risk on to the tenant!-You always want to do NNN lease.-Expense reimbursements are based on actual reimbursement. You may estimate rent to be $20 and estimate throughout the year to accrue $8 more in expenses.- I will charge you $28 today, but at the end I will reevaluate it and adjust it so I don't take on risk.-You pay exactly the expense reimbursement.debt service coverage rationet operating income/ total debt service-Measure of cash flows to pay current debt oplication major drawbacks of using IRR to evaluate investment=IRR doesn't explain whether the return is coming from operations or reversion. (your year zero cash flow is usually

operating or reversion inflows/returns on property, expressed as negative)-YOu don't know where the returns are coming from.-almost always the IRR is higher if you sell it earlier in the year.If you want to optimize IRR, you sell after year one.

cap rate consjust one year snapshot in time.-market cap rate can be difficult to determine.

• Over how many years do you depreciate commercial

real estate assets, excluding multifamily?39 years NOImeasures all revenue from property- all necessary operating expenses balance sheet1. a financial statement that summarizes a company's assets, liabilities and shareholders equity at a specific point in time.2. These balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders.3. Balance sheeta.Assets= Liabilities + Shareholders' Equity.

• The securitization process for CMBS's is important for

both banks and investors.

• It allows banks to issue more loans in total, and it gives

investors easy access to commercial real estate while giving them more yield than traditional government bonds.2. Typically only very wealthy investors invest in CMBS because there aren't many options for the average investors.3. Though many real state mutual funds invest a portion of their cash on cash returnannual income/ total investment-What return you get every year on an investment.=If you invest 100 the first year you get $8, your cash on cash is 8%-calculates the cash income earned on the cash invested in a property-It measures annual return the investor makes on the property in relation to the down payment only.DSCR above 1 and below?DSCR above one means you can pay debt obligationDSCR below one means you can't pay debt obligation 1.) Discuss what you view as some of the opportunities, risks, and challenges that investors face in today's real estate market

a. risks: Retail is a risky market because of the collapse of

brick and mortar with everyone moving to amazon to shop.b. Opportunitiesi. Raleigh Durham there is great opportunity to expand multi-family housing and rental properties because 23% of people living in the area are between ages 20-34 and are typically high paid professionals that graduated from UNC or DUKE.ii. Texas shows great opportunity for businesses with there being no corporate income tax.

1.) What are the best and worst performing asset classes in current market situation?

• Retail is going downhill with brick and mortar being

replaced by online shopping.b. Healthcare is an industry that is beginning to rise and will continue to rise with the baby boomer population.i. Currently 13% of population is 65+ and by 2022 it is expected to be around 20% of population 65+.equity mulitpletotal asset value/ total net equityIt measures financial leverage.High equity multiple indicates that a larger portion of asset financing is attributed to debt.