REA Due Diligence & Risk Assessment

Question 1

What is the primary purpose of a Phase I Environmental Site Assessment in real estate due diligence?

Accepted Answer

To identify potential environmental contamination on a property

Answer

To calculate the property's net operating income

Answer

To verify zoning compliance with local ordinances

Answer

To assess the structural integrity of buildings

Question 2

Which document provides a buyer with the legal description, easements, and encumbrances on a property?

Accepted Answer

Title commitment

Answer

Survey report

Answer

Zoning certificate

Answer

ALTA/NSPS survey

Question 3

During due diligence, a real estate analyst discovers that a tenant's lease contains a co-tenancy clause. What risk does this present?

Accepted Answer

Anchor tenant departure may allow other tenants to reduce rent or terminate leases

Answer

The property may require additional parking spaces

Answer

Environmental remediation costs may increase

Answer

The cap rate may be artificially inflated

Question 4

What does a 'estoppel certificate' confirm during due diligence?

Accepted Answer

A tenant's acknowledgment of lease terms, rent paid, and any landlord defaults

Answer

The property's compliance with ADA accessibility standards

Answer

The accuracy of the property's tax assessment

Answer

The structural condition of the roof and HVAC systems

Question 5

Which risk is most directly assessed through a Property Condition Assessment (PCA)?

Accepted Answer

Deferred maintenance and capital expenditure needs

Answer

Lease rollover exposure over the holding period

Answer

Interest rate sensitivity of the acquisition

Answer

Demographic shifts in the surrounding market

Question 6

What is 'concentration risk' in a real estate portfolio context?

Accepted Answer

Overexposure to a single tenant, market, or property type

Answer

The risk that interest rates rise faster than NOI growth

Answer

Liability from undisclosed environmental hazards

Answer

Overestimating market rental rates in underwriting