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
Under a triple-net (NNN) lease, the tenant assumes responsibility for property taxes, insurance, and maintenance costs, which transfers which type of risk to the tenant?
Answer: Operating expense risk
A NNN lease transfers operating expense variability—including unpredictable increases in taxes, insurance premiums, and maintenance costs—from the landlord to the tenant.
A risk manager reviewing a commercial property portfolio uses 'scenario analysis' primarily to:
Answer: Evaluate portfolio performance under hypothetical adverse conditions
Scenario analysis tests how a portfolio or property would perform under various stress conditions—such as rising vacancies, interest rate spikes, or natural disasters—to identify vulnerabilities.
Which endorsement added to a commercial property policy extends coverage to include loss caused by acts of terrorism?
Answer: TRIA endorsement (Terrorism Risk Insurance Act coverage)
The Terrorism Risk Insurance Act (TRIA) established a federal backstop for insured terrorism losses; a TRIA endorsement adds terrorism coverage to commercial property and liability policies.
Which type of risk in commercial real estate refers to the possibility that changes in laws or regulations will negatively affect a property's use, value, or operating costs?
Answer: Regulatory/legislative risk
Regulatory or legislative risk encompasses zoning changes, new environmental mandates, building code updates, or rent control laws that can restrict use or increase compliance costs.
A property owner mitigates vacancy risk in a multi-tenant retail center by maintaining a diverse mix of tenants across different retail categories. This strategy is analogous to which financial principle?
Answer: Diversification
Diversification reduces portfolio risk by ensuring that not all tenants are exposed to the same economic downturns, so weakness in one sector does not collapse the entire income stream.
In commercial real estate, a 'cap rate compression' environment primarily increases which risk for a buyer purchasing at today's prices?
Answer: Exit/resale risk if cap rates rise upon disposition
When cap rates are compressed (low), a future rise in cap rates upon sale will reduce the property's market value, meaning the buyer may sell for less than the purchase price.
Which practice involves a property owner creating a legally separate entity (such as an LLC) for each commercial asset to isolate liability between properties?
Answer: Asset isolation / liability compartmentalization
Holding each property in a separate LLC prevents a lawsuit or liability judgment on one asset from reaching the owner's other properties or personal assets.