Property Risk Management 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 Property Risk Management flashcards as text
A commercial property owner in a coastal region purchases windstorm coverage as a separate policy in addition to standard property insurance. This is most commonly required because:
Answer: Standard commercial policies automatically exclude flood and windstorm in high-risk coastal zones
In high-risk coastal areas, standard commercial property policies frequently exclude windstorm and hurricane damage, requiring separate coverage through surplus lines or state wind pools.
Which ratio do lenders primarily use to assess the income-based risk of a commercial mortgage, measuring the property's ability to service debt from operating income?
Answer: Debt service coverage ratio (DSCR)
The debt service coverage ratio (DSCR) divides net operating income by total debt service, with values above 1.25 typically required by lenders to ensure adequate income coverage.
A 'hold harmless' agreement in a commercial lease protects the landlord by:
Answer: Obligating the tenant to indemnify the landlord for claims arising from the tenant's operations
A hold harmless clause shifts legal and financial liability for specified claims from the landlord to the tenant, reducing the landlord's exposure to third-party suits related to tenant activities.
In commercial real estate risk management, 'force majeure' clauses in leases are most relevant to which type of risk?
Answer: Catastrophic or unforeseeable event risk that prevents lease performance
Force majeure clauses excuse non-performance of lease obligations when extraordinary events beyond either party's control—such as natural disasters or pandemics—prevent fulfillment.
Which seismic risk mitigation measure involves physically upgrading an older commercial building's structural system to meet current earthquake standards?
Answer: Retrofit/seismic upgrade
A seismic retrofit modifies the building's structural elements—such as adding shear walls or base isolators—to improve resistance to earthquake forces and reduce potential losses.
An investor performing risk analysis on a commercial office acquisition notes that 70% of the building's gross income comes from a single tenant. This represents elevated:
Answer: Tenant concentration risk
Tenant concentration risk is the vulnerability arising when a large portion of income depends on one tenant, whose default or departure could devastate the property's cash flow.
A commercial property owner purchases an 'umbrella' liability policy primarily to:
Answer: Provide excess liability coverage above the limits of underlying policies
An umbrella policy provides additional liability limits that activate once the underlying policy limits are exhausted, protecting against large catastrophic liability judgments.