Accounting

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EXAM – OPEN BOOK

DUE VIA EMAIL TO [email protected] BY EOD 5/9/2023

• Skip two (2) questions of your choosing (or complete all for optimal score protection). • Be sure to place you name or student number on the completed assignment. • Please email our Altus addresses with any questions. We will work to respond within 24 hrs. • Thanks for a great class!

CHAPTER 14 | SHOULD YOU BORROW?

1. Circle the three primary reasons for borrowing: a. Lenders are fun people to deal with b. You do need money to purchase the target asset size c. You desire to diversify your equity base d. There are tax advantages to borrowing e. You want to increase equity returns without taking any additional risk f. None of the above

2. If you acquire a property for $10M at an 8% cap rate and are able to finance 70% loan-to-value at 6% interest, what is your year 1 cash-on-cash return?

1. What are the most common reasons for early refinancing? (circle the two most relevant) a. You want to avoid ordinary income taxes b. Your property has risen considerably in value c. Your property has decreased considerably in value d. You want to lower your monthly payment because interest rates have fallen e. None of the above

CHAPTER 15 | THE USE OF DEBT AND MORTGAGES

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COURSE SUMMARY QUESTIONS

1. React: The most critical aspects of a lease for an office space are the annual base rent and the pass- through of CAM charges.

CHAPTER 10 | DEVELOPMENT

2. Hard Costs Include: a. Materials cost only b. Does not include materials cost c. Includes interim interest and legal costs d. Represents the total construction budget of a project e. None of the above

1. What does “build to a 9” mean? (circle 2 that apply) a. You will build 9 buildings b. Your stabilized NOI divided by your project costs will equal 9% c. Your going in cap rate will equal the reciprocal of the build to number, or 11% d. Your going out cap rate will be 7 e. Your “sell to” will be a 7%, if there is a 200 bp spread between your “build to” and “sell to”

CHAPTER 20 | INVESTMENT RETURN PROFILES

1. The main institutional real estate investment strategies are: ( circle four) a. Core b. Core Plus c. REITs. d. Value e. Value-add f. Opportunistic

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3. React: Since the allowable depreciable life on an apartment building is 27.5 years, versus 39 years for a shopping center, an apartment complex must have substantially lower annual capital expenditure requirements than a shopping center.

4. What is the difference between “full-service rent” and “triple net rent” in a property?

2. React: When evaluating the attractiveness of an investment's projected return, you should only focus on your equity IRR because it tells you the total return you will realize on your invested money.

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6. Name two key reasons why Real Estate is an attractive Asset Class for investors to consider/invest-in.

7. React: A loan with an 80% loan-to-value ratio is preferable to a loan with a 50% loan-to-value ratio.

5. What are five key ratios that lenders consider? What is the most conservative ratio for a lender to apply in the lender’s view/underwriting?