CRECI Investment Analysis and Portfolio Strategy 2

Question 1

A commercial property generates $300,000 in gross potential rent, has a 10% vacancy allowance, and $80,000 in operating expenses. What is the NOI?

Accepted Answer

$190,000

Answer

$300,000 × 0.90 = $270,000 effective gross income; $270,000 − $80,000 = $190,000 NOI.

Question 2

Which term describes the ratio of a property's annual gross rents to its purchase price, used as a quick valuation shortcut?

Accepted Answer

Gross rent multiplier

Answer

The GRM equals purchase price divided by annual gross rents and provides a simple comparison across similar properties.

Question 3

In a discounted cash flow analysis, what does the 'reversion value' represent?

Accepted Answer

The projected sales proceeds at the end of the holding period

Answer

The reversion value (or terminal value) is the estimated net proceeds from selling the property at the end of the projection period.

Question 4

An investor expects to sell a commercial property in Year 5 at an exit cap rate of 7.5% when Year 6 NOI is projected at $225,000. What is the estimated terminal value?

Accepted Answer

$3,000,000

Answer

$225,000 / 0.075 = $3,000,000 terminal value using the going-out cap rate applied to next year's NOI.

Question 5

Which portfolio risk concept refers to the risk inherent to the overall commercial real estate market that cannot be eliminated through diversification?

Accepted Answer

Systematic risk

Answer

Systematic (market) risk affects all properties and cannot be diversified away, unlike property-specific idiosyncratic risk.

(CRECI) Commercial Real Estate Certification Institute Practice Test

(CRECI) Commercial Real Estate Certification Institute Practice Test

CRECI Investment Analysis and Portfolio Strategy 2