REA Due Diligence & Risk Assessment 2

Question 1

What is the significance of a 'subordination, non-disturbance, and attornment' (SNDA) agreement in due diligence?

Accepted Answer

It protects tenants from lease termination if a lender forecloses on the property

Answer

It waives the tenant's right to negotiate lease renewals

Answer

It allows the landlord to relocate tenants without consent

Answer

It confirms the property's compliance with local building codes

Question 2

In real estate risk analysis, what is 'rollover risk'?

Accepted Answer

The risk that leases expire and cannot be renewed at current or higher rents

Answer

The risk of property value loss due to market depreciation

Answer

The probability of construction cost overruns on a development project

Answer

The risk that floating-rate debt reprices above the property's yield

Question 3

What financial metric is most commonly used to quantify a property's sensitivity to vacancy fluctuations?

Accepted Answer

Break-even occupancy rate

Answer

Debt service coverage ratio

Answer

Loan-to-value ratio

Answer

Gross rent multiplier

Question 4

Which type of due diligence risk is specifically addressed by reviewing a property's rent roll?

Accepted Answer

Lease credit risk and income concentration

Answer

Soil contamination and environmental liability

Answer

Structural deficiencies and deferred maintenance

Answer

Title defects and encumbrances

Question 5

What is the purpose of a 'zoning compliance letter' obtained during due diligence?

Accepted Answer

Confirms the property's current use is permitted and any nonconforming status

Answer

Discloses pending litigation from adjacent property owners

Answer

Verifies that all environmental remediation is complete

Answer

Certifies structural soundness of the building

Question 6

Which scenario represents 'interest rate risk' in a real estate investment?

Accepted Answer

Rising rates increase refinancing costs and compress cap rates at exit

Answer

A major tenant exercises its early termination option

Answer

Construction costs exceed the original budget by 20%

Answer

The property's assessed value increases, raising property taxes