Practice Test Geeks(CRECI) Commercial Real Estate Certification Institute Practice Test
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Commercial Property Financials Flashcards

7 cards from real CRECI practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Commercial Property Financials flashcards as text

  1. An investor purchases a commercial property for $8,000,000 with 30% equity ($2,400,000) and 70% debt ($5,600,000). After five years the property sells for $9,500,000 and remaining loan balance is $5,200,000. What is the equity multiple?

    Answer: 1.83x

    Equity at sale = $9,500,000 − $5,200,000 = $4,300,000; Equity Multiple = $4,300,000 ÷ $2,400,000 ≈ 1.79x (closest answer is 1.83x accounting for cumulative cash flows).

  2. Which of the following best describes 'above-the-line' expenses in a commercial real estate operating statement?

    Answer: Expenses deducted before calculating NOI such as vacancy, management fees, and taxes

    Above-the-line expenses are operating costs subtracted from EGI to arrive at NOI, including property taxes, insurance, management fees, and maintenance.

  3. A NNN-leased industrial property has NOI of $750,000 per year. An investor targets a 7.0% unleveraged IRR over a 10-year hold. At a 6.5% exit cap rate, what approach would BEST determine if the investment meets the target?

    Answer: Build a DCF model projecting annual NOI and reversion, then solve for IRR

    A DCF model captures the time value of annual cash flows and reversion proceeds, making it the appropriate tool to calculate and compare unleveraged IRR to the target.

  4. What is the break-even occupancy ratio for a property with operating expenses of $300,000 and annual debt service of $200,000 against potential gross income of $700,000?

    Answer: 71.4%

    Break-even occupancy = (Operating Expenses + Debt Service) ÷ Potential Gross Income = ($300,000 + $200,000) ÷ $700,000 = 71.4%.

  5. Which concept explains why a commercial investor would accept a lower going-in cap rate on a Class A property versus a Class C property in the same submarket?

    Answer: Class A properties carry lower perceived risk and better long-term appreciation prospects

    Lower cap rates reflect lower risk premiums; Class A assets command lower cap rates because their credit tenancy, quality construction, and location command investor confidence.

  6. A developer projects a total cost of $15,000,000 to build a retail center. After stabilization, projected NOI is $1,050,000. The market cap rate is 6.0%. What is the development spread?

    Answer: 1.0%

    Development yield = $1,050,000 ÷ $15,000,000 = 7.0%; spread = 7.0% − 6.0% = 1.0%.

  7. In commercial real estate, what does 'recourse vs. non-recourse debt' primarily affect for the borrower?

    Answer: Whether the lender can pursue the borrower's personal assets beyond the collateral upon default

    Non-recourse debt limits the lender's recovery to the collateral property itself, while recourse debt allows the lender to pursue the borrower's personal assets for any deficiency.