CRECI Property Risk Management 3

Question 1

Which clause in a commercial property insurance policy specifies the minimum percentage of a property's value that must be insured to collect full reimbursement on partial losses?

Accepted Answer

Coinsurance clause

Answer

The coinsurance clause penalizes policyholders who underinsure their property by reducing claim payments proportionally when coverage falls below the required percentage of value.

Question 2

A commercial real estate investor uses a ground lease structure instead of purchasing land outright primarily to reduce which category of risk?

Accepted Answer

Capital risk / equity exposure

Answer

A ground lease reduces the investor's capital at risk because the land (often the largest component of value) is not purchased, lowering total equity exposure.

Question 3

Which document produced during the due diligence phase of a commercial acquisition identifies physical deficiencies and deferred maintenance that represent potential future capital expenditures?

Accepted Answer

Property condition assessment (PCA)

Answer

A property condition assessment (PCA) evaluates the physical state of a building's systems and structure, flagging items that may require near-term capital investment.

Question 4

An owner of a multi-tenant office building wants to limit exposure to large, infrequent losses while keeping premiums low. Which policy structure accomplishes this?

Accepted Answer

High-deductible policy with excess coverage

Answer

A high-deductible policy reduces premiums by retaining smaller losses and relies on excess coverage to protect against catastrophic events.

Question 5

In commercial real estate, which risk arises specifically from a tenant failing to pay rent or abandoning the premises before lease expiration?

Accepted Answer

Credit/default risk

Answer

Credit or default risk refers to the possibility that a tenant will not fulfill its financial obligations under the lease, resulting in lost income for the owner.

(CRECI) Commercial Real Estate Certification Institute Practice Test

(CRECI) Commercial Real Estate Certification Institute Practice Test

CRECI Property Risk Management 3