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  1. 5 Points) List & Describe at Least 2 Problems withusing a capitalization rate that is obtained from previous Commercial property sales transactions to value a property being offered for sale today?

 

Problems occur if properties being used as "comparables" have different lease terms, maturities, and credit quality of tenants.  Further, if properties are older, have depreciated, have different functional design, etc. than the subject, problems can occur.  In these cases cap rates must be either adjusted to reflect these differences or not used at all.

 

 

 

 

 

 

  1. 5 Points) When may a "terminal" cap rate be lower than a "going in" cap rate?  When may it be higher?

 

 

A terminal cap rate may be lower than the going in cap rate if between the present time and end of a holding period interest rates are expected to fall, risk is expected to decline, or demand is expected to increase (thereby producing higher rents and/or appreciation).          A higher terminal cap rate would result if the opposite changes in the three situations stated above occurred.

 

 

 

 

 

 

  1.  5 Points) In general, what effect would a reduction in risk have on "going in" cap rates?  What would be the effect on property values?

 

A reduction in risk lowers   cap rates because expected returns are lower.  If this occurred at a time when demand increases, property values would rise significantly because of increases in rents from greater demand and lower cap rates.
20) 2 Points )The capitalization rate for commercial real estate is highly correlated to the 10-year US treasury yield.

 

                                                                TRUE    OR     FALSE

 

State WHY :Due to the longevity of real estate leases, and the differential supply and demanddynamics of real estate relative to other sectors of the economy.

 

 

 

 

 

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  1. 5 Points) xxxxxxx & Describe xxxxxxx Least 2 xxxxxxx xxxxxxx a xxxxxxx rate that xxxxxxx obtained from xxxxxxx Commercial xxxxxxx xxxxxxx transactions to xxxxxxx a property xxxxxxx offered for xxxxxxx today?

 

Problems occur xxxxxxx properties being xxxxxxx as "comparables" xxxxxxx xxxxxxx lease xxxxxxx maturities, and xxxxxxx quality of xxxxxxx Further, xxxxxxx xxxxxxx are older, xxxxxxx depreciated, have xxxxxxx functional design, xxxxxxx than the xxxxxxx problems can xxxxxxx In these xxxxxxx xxxxxxx rates xxxxxxx be either xxxxxxx to reflect xxxxxxx differences xxxxxxx xxxxxxx used at xxxxxxx value="2">5 Points) xxxxxxx may a xxxxxxx cap rate xxxxxxx lower than xxxxxxx "going in" xxxxxxx xxxxxxx When xxxxxxx it be xxxxxxx style="margin-left:36.0pt;"> 

 

A xxxxxxx cap xxxxxxx xxxxxxx be lower xxxxxxx the going xxxxxxx cap rate xxxxxxx between the xxxxxxx time and xxxxxxx of a xxxxxxx xxxxxxx interest xxxxxxx are expected xxxxxxx fall, risk xxxxxxx expected xxxxxxx xxxxxxx or demand xxxxxxx expected to xxxxxxx (thereby producing xxxxxxx rents and/or xxxxxxx A higher xxxxxxx cap rate xxxxxxx xxxxxxx if xxxxxxx opposite changes xxxxxxx the three xxxxxxx stated xxxxxxx xxxxxxx style="margin-left:36.0pt;"> 

 

 

 

 

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    A reduction xxxxxxx risk lowers xxxxxxx cap rates xxxxxxx expected returns xxxxxxx lower.  If xxxxxxx occurred at xxxxxxx xxxxxxx when xxxxxxx increases, property xxxxxxx would rise xxxxxxx because xxxxxxx xxxxxxx in rents xxxxxxx greater demand xxxxxxx lower cap xxxxxxx clear="all" /> 20) xxxxxxx Points )The xxxxxxx rate for xxxxxxx xxxxxxx estate xxxxxxx highly correlated xxxxxxx the 10-year xxxxxxx treasury xxxxxxx xxxxxxx OR     FALSE

     

    State xxxxxxx :Due to xxxxxxx longevity of xxxxxxx estate leases, xxxxxxx the differential xxxxxxx and demanddynamics xxxxxxx xxxxxxx estate xxxxxxx to other xxxxxxx of the xxxxxxx name="_GoBack">

     

     

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