CRECI Commercial Property Financials 3

Question 1

In a discounted cash flow (DCF) analysis for a commercial property, the 'terminal value' is typically calculated using which method?

Accepted Answer

Applying a cap rate to the final year's projected NOI

Answer

Terminal value (reversion) is most commonly estimated by applying a terminal (exit) cap rate to the NOI projected in the year following the holding period.

Question 2

What does a 'load factor' (also called add-on factor) represent in commercial leasing?

Accepted Answer

The percentage added to usable square footage to arrive at rentable square footage

Answer

The load factor converts usable square footage to rentable square footage by adding a proportionate share of common areas.

Question 3

An office building's proforma shows $1,200,000 in potential gross income, $96,000 in vacancy loss, and $350,000 in operating expenses. What is the NOI?

Accepted Answer

$754,000

Answer

NOI = ($1,200,000 − $96,000) − $350,000 = $1,104,000 − $350,000 = $754,000.

Question 4

Which lease structure requires the tenant to pay base rent plus all property operating expenses including taxes, insurance, and maintenance?

Accepted Answer

Triple net (NNN) lease

Answer

Under a triple net lease, the tenant bears responsibility for taxes, insurance, and maintenance in addition to base rent.

Question 5

What is the purpose of a sensitivity analysis in commercial real estate financial modeling?

Accepted Answer

To test how changes in key assumptions affect investment returns

Answer

Sensitivity analysis evaluates how changes in variables such as cap rate, vacancy, or rent growth impact projected returns like IRR or NPV.

(CRECI) Commercial Real Estate Certification Institute Practice Test

(CRECI) Commercial Real Estate Certification Institute Practice Test

CRECI Commercial Property Financials 3