Chapter 1

Question 1

Real estate investors make immediate and certain sacrifice of _________ expecting __________

Answer 1

current purchasing power, future economic benefit

Question 2

Investment proposals are evaluated by…

Answer 2

comparing magnitude of the sacrifice & quantity and timing of expected benefits & by considering level of certainty with which expectations are held.
=> adjust for time & uncertainty
==> allows comparison among competing alternatives.

Question 3

Attempts to measure & compare real estate investment returns with other investments =

Answer 3

inconclusive

Question 4

Attempts to measure & compare real estate investment returns with other investments: Outcomes heavily influenced by…

Answer 4

dates over which performance is measured

Question 5

Attempts to measure & compare real estate investment returns with other investments: Evidence

Answer 5

Preponderance of evidence suggests real estate & common stocks offer roughly equal long-term yield prospects but real estate performs better during periods of high inflation.

Question 6

Attempts to measure & compare real estate investment returns with other investments: real estate prices

Answer 6

Research suggests real estate prices = less volatile,

=> But may be an illusion due to real estate market inefficiencies

Question 7

_______ find real estate an attractive investment medium

Answer 7

institutions & individuals

Question 8

Institutions & individuals find real estate an attractive investment medium.

Answer 8

• Changes in fed. laws and regulatory attitudes in recent years enhanced its appeal to pension funds.
• Equity REITs have multiplied in more benign income tax environment.

Question 9

FDI in US realty

Answer 9

FDI in U.S. realty became a major public issue when its volume grew during early 1980s;
=> Concern abated when net flow of foreign equity capital ebbed at end of decade.
=> The market heated up again in early 1990s and in beg. of 21st century. Foreign investors’ interest in U.S. realty = heavily influenced by foreign exchange rates and comparative interest rates

Question 10

Investment analysis follows consistent pattern regardless of investment vehicle or investor entity:

Answer 10

• The streams of benefits from alternative proposals are forecast and adjusted for timing and risk differences.
• Alts. then ranked according to desirability,
  => In terms of trade-off between perceived risk and anticipated return.
  => Rankings differ according to discount rate used for timing adjustments and with varying investor attitudes toward risk.

Question 11

Investment value

Answer 11

highest price a prospective buyer is justified in paying for a property or the lowest price a prospective seller is justified in accepting.

Question 12

Investment value is a function of:

Answer 12

• Available financing,
• Investor’s income tax position,
• Yield available on alternative investments,
• Timing and amount of anticipated benefits flowing from the investment under consideration.

Question 13

The investment decisions is _________, and investment value will be _________

Answer 13

subjective, different for each investor

Question 14

Investment value estimated by :

Answer 14

summing the present values of the equity position and the debt position associated with a proposed venture

Question 15

Present value of the equity position =

Answer 15

discounted value of all anticipated future cash flows to the equity position

Question 16

Present value of the debt position =

Answer 16

available loan or the remaining balance on an existing loan.

Question 17

investors differ in bot their _______ and their _______ toward risk

Answer 17

perceptions of, attitudes

Question 18

• Difference among attitudes is sometimes expressed as

Answer 18

degrees of risk aversion

Question 19

degrees of risk aversion.

Answer 19

The more risk-averse, the greater the expected reward will have to be to induce investment in a given project