Due Diligence & Risk Assessment Flashcards
6 cards from real REA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Due Diligence & Risk Assessment flashcards as text
What is the significance of a 'subordination, non-disturbance, and attornment' (SNDA) agreement in due diligence?
Answer: It protects tenants from lease termination if a lender forecloses on the property
An SNDA ensures tenants' leases survive foreclosure in exchange for the tenant subordinating its lease to the lender's mortgage.
In real estate risk analysis, what is 'rollover risk'?
Answer: The risk that leases expire and cannot be renewed at current or higher rents
Rollover risk refers to the uncertainty about re-leasing space when leases expire, including potential vacancy and below-market renewals.
What financial metric is most commonly used to quantify a property's sensitivity to vacancy fluctuations?
Answer: Break-even occupancy rate
Break-even occupancy shows the minimum occupancy level at which a property's income equals its total operating and debt service expenses.
Which type of due diligence risk is specifically addressed by reviewing a property's rent roll?
Answer: Lease credit risk and income concentration
Reviewing the rent roll reveals tenant creditworthiness, lease expirations, and income concentration risks.
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.
Which scenario represents 'interest rate risk' in a real estate investment?
Answer: Rising rates increase refinancing costs and compress cap rates at exit
Rising interest rates raise debt costs at refinance and push cap rates higher, reducing the property's value at disposition.