HW Quiz 10 Flashcards
(22 cards)
Which of the following real estate exit strategies will result in the most number of controlled properties?
-like-kind exchange
-none of the options
-fee simple disposition
-exchange for public company shares
-refinancing
Refinancing
A developer plans on purchasing a value-add multifamily apartment complex. She plans on completing the repositioning of this project in 3 years and selling it at the end of year 3 assuming relatively unchanging interest rates during the hold, and favorable market conditions at exit. Which loan type likely aligns best with her plans and expectations?
A floating rate, short term interest-only loan
-Short term floating rate loans traditionally have little to no prepayment penalty. In addition, there is no substantial benefit to amortizing the loan if the hold period is intended to be so short.
The main advantage of 1031 exchanges is (choose the best answer):
-You can purchase a property, defer taxes, and sell it quickly soon afterwards
-you can avoid taxes forever
-you can defer taxes
-it is easier to find a replacement property
-none of the options
You can defer taxes
Which of the following real estate exit strategies defer capital gain taxes? (select all that apply)
-1031 exchange
-exchange for public company shares
-none of the options, all the exit strategies will have capital gain tax
-refinancing
-fee simple disposition
-1031 exchange
-exchange for public company shares
-refinancing
Suppose you buy a property for $100 million, and have been depreciating the building (not the land) for the past 4 years to shield income from ordinary taxes. The government (currently) requires that you pay a 25% tax rate on accumulated depreciation. Depreciate $70 Million (the value of the building) on a 39-year schedule. Based on this, how much must you pay in taxes for accumulated depreciation?
1.79
True or False: When considering exit strategies, refinancing, in some cases, is preferable to an outright sale.
True
Why do people want to exit real estate? (Select all that apply)
-They prefer the lower risk of development to that of managing a property
-A group with managing advantages may be able to pay more for a property
-None of the options
-They have a fixed investment horizon that have to adhere to
-They need money
-They wish to take on more risk than managing stable profits
-A group with managing advantages may be able to pay more for a property
-They have a fixed investment horizon that have to adhere to
-They need money
-They wish to take on more risk than managing stable profits
True or False: For any institutional real estate investor, as long as the current market value is higher than initial purchase price, the investor should not have any reason to exit.
False
True or False: For any institutional real estate investor, as long as its property generates enough rental income to cover the expenses, debt payments and taxes, the investor should not have any reason to exit.
False
What are the three REIT categories?
Equity REITs
Hybrid REITs
Mortgage REITs
Select all of the true statements:
-None of the options
-REITs cannot be private
-REITs must have at least 100 shareholders
-UPREIT structures can help owners avoid paying capital gains taxes
-REITs are allowed to develop many properties
-REITs must pay 95% of their taxable income as dividends
-REITs must have at least 100 shareholders
-UPREIT structures can help owners avoid paying capital gains taxes
REITs are essentially: (select the best answer)
-A tax exempt structure for real estate ownership
-None of the options
-Easily traded on the stock market
-Private real estate companies
-Public real estate companies
-A trust created for inheritance purposes
A tax exempt structure for real estate ownership
Why would you choose to sell your building portfolio to a much larger public REIT? Choose the best reason:
-You will now own a large part of a larger portfolio
-You can specialize your real estate holdings to niche areas you know well
-None of the options
-You will maintain ownership of 100% of your portfolio
-You will have a more diversified and perhaps more liquid real estate holding
-It is prestigious to sell to a REIT
You will have a more diversified and perhaps more liquid real estate holding
When were REITs created?
1960
Why were many REITs created in the 1990s?
Changes in the tax legislation and excessive leverage forced real estate companies to go public
Which of the following are operating restrictions for REITs? (Select all that apply)
-REITs have to publicly disclose executive salaries, detailed audited financials, and other material information.
-The firm must pay out at least 50% of its taxable income as dividends.
-The firm must pay out at least 90% of its taxable income in dividends
-The firm must be diversified in the various capital instruments.
-The firm must have at least 100 shareholders
-REITs do not have double taxation
-The firm must primarily be in the business of owning and operating real estate
-Five or fewer individuals cannot own more than 50% of the REIT’s stock
-The firm must pay out at least 90% of its taxable income in dividends
-The firm must have at least 100 shareholders
-The firm must primarily be in the business of owning and operating real estate
-Five or fewer individuals cannot own more than 50% of the REIT’s stock
Which type dominates the REIT market?
Equity REITs
Imagine you have a building you bought 20 years ago for $100. It is now appraised at $10,000. Two years ago, you got a 90% LTV loan (value being set at $9,500) with no prepayment penalty and a 6% interest rate (assume no amortization). Capital gains taxes are 15%, ordinary income taxes are 35%, and taxes on accumulated depreciation are 25%. Use straight-line depreciation of 40 years. How much cash will you generate from this deal?
-$5,585.00
-$5,597.50
-$7,582.50
-$6,852.50
-$1,050.75
-$7,577.50
-None of the options; Missing information
None of the options; missing information
Assume you purchased Jessica Crest for $100MM five years ago and its recent property appraisal has shown your asset worth $140MM with a $60MM mortgage in place and would like to refinance the property to raise enough capital to purchase a $40MM office building. Assuming that you can refinance 60% loan-to-value of the new assessed value. Assume a $1MM refinancing fee on the new mortgage. The Net Refinancing Proceeds is the difference between new debt amount and the old debt amount net of fees and taxes. The Net Equity is the sum of net refinancing proceeds and equity in Jessica Crest. Please compute the total net equity. Write your answer in millions (MM) with no decimal place.
79
Assume you purchased Jessica Crest for $100MM five years ago and its recent property appraisal has shown your asset worth $140MM with a $60MM mortgage in place and would like to refinance the property to raise enough capital to purchase a $40MM office building. Assuming that you can refinance 74% loan-to-value of the new assessed value. Assume a $1MM refinancing fee on the new mortgage. The Net Refinancing Proceeds is the difference between new debt amount and the old debt amount net of fees and taxes. Please compute the Net Refinancing Proceeds. Write your answer in millions (MM) with 1 decimal place. If you want to know how much is the total net equity the owner has, the Net Equity is the sum of net refinancing proceeds and equity in Jessica Crest.
42.6
You acquired a building for $100.00MM and financed the acquisition with a $75.00MM interest-only loan. 7 years later, you sold the property for $120.00MM. Assume 70% of the property was attributed to structure and that the structure was depreciated over a 39-year period. Also assume that capital gains are taxed at 15% and that accumulated depreciation is taxed at 25%. Also assume a 3% sales cost for the building and no prepayment penalty for the loan, you can calculate the net equity at sale. Let us define the Net profit as Net equity at sale minus the initial equity investment. What is your Net Profit ? Write your answer in millions (MM) with 2 decimal places.
10.26
Assume you want to sell an asset worth $200MM with a $100MM mortgage in place and have identified a $200MM U.S. Government-leased office building to acquire via a like-kind exchange. Assuming that you can finance 68% loan-to-value in the U.S. Government building, how much capital will you realize today? Assume a 3% sale expense and a 2% underwriting fee on the new loan for the purchase of the like-kind exchange. Write your answer in millions (MM) with 2 decimal places.
27.28
