Valuation
If NOI growth of a property increases, what should happen to cap rates?
Decrease.
What is LTV? Explain and give its formula.
Loan-to-value (LTV) represents the percentage of debt based on the property's value. For example, if you buy a $100 property with a $70 loan, the LTV is 70%.
What is the current Federal Funds Rate Target Range?
4.25-4.50
Where is former CREG President Alessandra Watson working this coming summer?
BOFA REGL!!!!
What are Tenant Improvements (TIs)?
TIs are costs a landlord incurs to customize a rental space for a tenant, often as part of lease negotiations. For example, in order to convince a new tenant to sign your lease, the landlord must pay them $100/SF, which they will use to repaint the walls and customize the interior of the property to their business needs.
When we classify properties by Class A, B, and C, name three factors that we actually use to determine their classification.
-Age
-Rents compared to market
-Location
-Occupancy
-Exterior and interior design
What is the relationship between the cost of capital, the risk free rate, and risk premium? Explain.
The cost of capital equals the risk free rate + the risk premium, which is any expected returns from the property above the risk free rate.
Which city's rental market has tied Miami for the top spot on RentCafe's hottest rental markets, with apartments in this city being rented within 33 days on average, almost a week faster than the national rate? It is also home to a bean.
Chicago
What British student of Columbia, a lover of real estate, has worked at Morgan Stanley, Blackstone, and Greystar, and was the original founder of CREG in 2019?
Paul Karavaikin.
What is the formula for Debt Service Coverage Ratio (DSCR) and what does it represent?
NOI/Annual Debt Service.
The ratio of a property's NOI to its total debt service obligations. A DSCR greater than 1.0 indicates that the property generates enough income to cover its debt obligations.
Explain the differences between core, core+, value-add, and opportunistic. Differentiate them by risk/reward and IRR targets.
Core has the least returns and usually refers to trophy, Class A assets in tier 1 cities---10% IRR.
Core+ means Class A assets in tier 2 cities or possibly in between Class A and Class B in tier 1 cities---10-15% IRR.
Value-add typically involves some renovation---15-20% IRR.
Opportunistic refers to development from the ground-up---targeting 20-25% IRR.
You purchase a building for $100 at a 10 cap. You take a loan 50% LTV at a 5% interest rate. You sell at the end of 5 years. Assume NOI stays the same. What's the cash on cash?
(Hint: cash on cash return is Annual Pre-Tax Cash Flow/Equity Invested)
You put in $50 (other $50 came from the loan). Your interest expense is 50 * .05 = 2.5. So you are making $10 from NOI - $2.5 from interest expense. Or $7.5 from the $50 of equity, so $7.5/$50 = 15%.
Which American real estate developer and investor, who had put a massive picture of himself and his new wife on the corner of his 432 Park Avenue building, is responsible for persuading Apple to build their iconic subterranean 5th Avenue retail store?
Harry Macklowe
Though he performed in some of Hollywood's most famous projects like Hitch, Karate Kid, and Ali, who is nevertheless best known for commendably slapping Chris Rock in the face at the Oscars?
Will Smith
What is preferred equity in real estate?
Represents a type of investment that is subordinate to senior debt but senior to common equity. They receive a fixed rate of return and are prioritized over common equity holders when distributions are made.
What is a reversion cap rate?
It's the same as an exit cap rate---the cap rate you believe you can sell the property for.
What is meant by the mark-to-market investment strategy?
Mark-to-market is an investing strategy where you increase rents to the current market level. This assumes that current rents are below market, and you usually need to explain why they are below market.
With US multifamily construction slowing down dramatically, which city in the US' Sun Belt is on track to add 10k units in 2025, a 68% decrease from their addition of 31k new units in 2024?
Which culinary genius famously put two pieces of bread on either side of a chef's face, asking them, "What are you?," awaiting the response, "an idiot sandwich?"
Gordon Ramsay
Define a limited partner (LP).
An LP is a passive investor in a deal.
If a pension fund or endowment gives a PE fund the money to invest, the pension fund or endowment is the LP. They are not the ones actively investing.
Ladies and gentlemen, take out a pen and paper.
Let's say you purchase a building for $100 at a 10 cap. You use 70% LTV at a 10% interest rate. NOI stays constant, and you exit at a 10 cap. What's the cash on cash?
(Hint: the formula for cash on cash is Annual Pre-Tax Cash Flow/Equity Investment)
$10 of NOI - 7$ interest = $3 of NOI after debt service. You put in $30 of equity, so $3/$30 = 10%.
Explain the difference between the amortization of a loan vs. interest only?
An amortized loan involves paying a constant sum of principal (the balance on which interest is charged) and interest each year.
With an interest-only loan, you pay only interest and repay the principal at the end of the term.
Which Chinese property developed, the second largest in China by sales, defaulted in 2021, filed for bankruptcy in 2023 and started the Chinese property sector crisis (2020-present)?
Evergrande.
"I gave everything that I have. I put my heart and my blood and my sweat and my tears in this game and—against all odds, against all odds, I don't know why we want to take the hardest road. I don't know why the man above gave me the hardest road but there's nothing the man above going to put new situations that you can't handle," is a quote attributed to which NBA great after winning his 3rd NBA championship in 2016?
LeBron James.
What is the difference between a recourse vs. non-recourse loan?
Recourse loans mean that the borrower is personally liable for the debt, while nonrecourse means the lender can only seize the collateral.