Mixed Deck — All REA Topics Flashcards

Under the Tax Cuts and Jobs Act of 2017, the first-year bonus depreciation percentage for qualifying property placed in service after September 27, 2017 was set at:

Answer: 100%

The TCJA increased bonus depreciation to 100% for qualified property placed in service after September 27, 2017, before the phased reduction began in 2023.

Under the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) has authority over:

Answer: Mortgage origination, servicing, and consumer financial protection in real estate transactions

The CFPB, created by Dodd-Frank, regulates mortgage origination, servicing, and consumer financial products to protect borrowers in real estate transactions.

When a real estate analyst prepares a supply pipeline analysis, 'proposed' projects are distinguished from 'under construction' projects because:

Answer: Proposed projects carry higher delivery risk since they lack permits or financing commitments

Proposed projects have not yet secured entitlements or financing, so they carry significant probability of delay or cancellation versus projects actively under construction.

When analyzing multifamily market data, 'effective rent' differs from 'asking rent' because effective rent:

Answer: Accounts for concessions such as free months or move-in specials granted to tenants

Effective rent is the actual economic rent received after subtracting the value of concessions (e.g., one free month), providing a truer picture of market conditions.

What is the primary purpose of a real estate feasibility study?

Answer: Determining whether a proposed development is financially viable given market, cost, and return parameters

A feasibility study evaluates whether projected revenues, construction costs, and financing conditions will generate returns that meet investor thresholds.

Which approach to value is most commonly relied upon for the appraisal of special-purpose properties like churches or schools?

Answer: Cost approach

Special-purpose properties rarely sell or generate measurable income, so the cost approach is typically most applicable.

In development underwriting, what is an 'interest reserve'?

Answer: Funds set aside in the construction loan to cover interest payments during the construction and lease-up period

An interest reserve is built into the construction loan budget to fund interest payments during the construction period when the property generates no income.

A commercial real estate loan has an LTV of 65% and DSCR of 1.30x. What does this tell an analyst?

Answer: The loan is conservatively structured with low leverage and income well above debt service

A 65% LTV means significant equity cushion, and a 1.30x DSCR confirms income comfortably exceeds debt payments — both indicators of conservative underwriting.

What is the role of the Real Estate Settlement Procedures Act (RESPA)?

Answer: To ensure transparency in settlement costs and prevent fraud

The Real Estate Settlement Procedures Act (RESPA) plays a vital role in protecting consumers during real estate transactions. Its primary purpose is to ensure greater transparency regarding settlement costs, requiring lenders and brokers to provide clear disclosures about fees and services. RESPA also aims to eliminate abusive practices, such as kickbacks and unearned fees, thereby preventing fraud and allowing consumers to make informed decisions.

In a joint venture waterfall, a 'catch-up' provision typically allows the:

Answer: GP to receive a disproportionate share of profits until reaching its target promote

A catch-up clause lets the GP receive the majority of distributions until it has been paid its cumulative promote percentage.

The 'highest and best use' analysis in real estate requires that the use be:

Answer: Legally permissible, physically possible, financially feasible, and maximally productive

Highest and best use must satisfy all four criteria: legally permissible, physically possible, financially feasible, and maximally productive.

What is 'economic occupancy' versus 'physical occupancy' in property management?

Answer: Economic occupancy measures rent collected relative to potential rent; physical occupancy measures leased space relative to total space

Physical occupancy is a space metric (% leased), while economic occupancy is an income metric (% of potential rent collected), accounting for free rent and delinquencies.

What is the significance of the National Association of Realtors (NAR) Code of Ethics?

Answer: To set ethical standards for real estate professionals

The National Association of Realtors (NAR) Code of Ethics is highly significant as it establishes a comprehensive set of ethical standards and professional practices for its members. This code goes beyond legal requirements, guiding Realtors to act with honesty, integrity, and fairness in all their dealings with clients, customers, and the public. Adherence to these principles fosters trust in the profession and protects consumer interests.

Straight-line rent averaging is most commonly used when underwriting:

Answer: Office leases with free rent and scheduled rent steps

GAAP straight-line rent averaging smooths free rent periods and scheduled increases over the full lease term, most applicable to long-term commercial leases.

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

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

A zoning compliance letter from local authorities confirms legal use and identifies nonconforming status that could affect redevelopment or financing.

What does 'leasing velocity' measure in commercial real estate operations?

Answer: The pace at which vacant space is being signed to new leases over a given period

Leasing velocity measures how quickly vacant space is being absorbed through new tenant signings, indicating market demand and effectiveness of the leasing program.

A real estate analyst calculates a property's break-even occupancy at 72%. Current occupancy is 85%. This 13-point cushion is best described as:

Answer: Occupancy buffer or downside cushion

The gap between current occupancy and break-even occupancy represents the downside cushion before debt service is jeopardized.

What tools are commonly used for market research in real estate?

Answer: Market reports, GIS, and CMA

Real estate market research utilizes various tools to gather and analyze data effectively. Market reports provide aggregated data and expert analysis on broader trends, while Geographic Information Systems (GIS) allow for spatial analysis of property data, demographics, and infrastructure. Comparative Market Analysis (CMA) is a specific tool used to estimate a property's value by comparing it to recently sold, similar properties in the same area.

The Superfund law (CERCLA) imposes liability for environmental cleanup costs on which parties?

Answer: Current owners, past owners, operators, and parties who transported hazardous waste to the site

CERCLA imposes strict, joint and several liability on current and past owners/operators of contaminated sites and generators/transporters of hazardous substances.

Which term describes the total potential rental income if a property were 100% occupied at market rates?

Answer: Potential Gross Income (PGI)

Potential Gross Income is the maximum income achievable assuming full occupancy at prevailing market rents.