Question

1. Explain the following statements

1. Every real estate development project involves both the public and the private sectors.

2. Time plays crucial role in the real estate development process.

3. Supply and demand have direct relation with property value

4. Real estate development involves a lot of risks, however, good developers know how to mitigate their risks. (Explain the nature and types of risks and the tools to mitigate them)

5. The effective real estate market research is often a matter of excluding the irrelevant.

6. When one buys a real estate, what one is buying is a set of assumptions about the future.

7. Creating the analyst’s story is the most creative and challenging aspect of real estate market analysis.

8. There will always be a different market analysis for the same assignment.

3. Answer the following questions

1. What are the most common forms of compensation for developers?

The most common forms of compensation are income and capital value

2. Why is it important for real estate players to stay well informed about market trends?

3. What is the difference between variable and fixed expenses? Give two examples of each

type of expenses.

4. Why development of a mixed-use project might be more difficult than development of a

single property type?

5. What are the two methods analysts use to conduct real estate market research, and what

are the main differences between the two methods?

6. Describe the back-of-the-envelope pro forma and what it is used for.

7. Discuss the many roles a developer must play in each stage of the eight stages of the real

estate development.

8. Why are appraisers involved before, during, and at project completion?

9. Define and describe at least 4 factors that contribute to the value of a property.

10. Explain why sales approach is not likely to be useful in estimating the value of a new

type of buildings.

11. Why debt service and income taxes are not included in the calculation of the Net

Operating Income of a property NOI.

12. What is the main difference between the transactional adjustment and the property

adjustment?

13. Why do lenders hire appraisers?

14. Assume a reserve for non-recurring capital expenditures is to be included in the pro

forma for the subject property. Explain how an above-line treatment of this expenditure

would differ from a below-line treatment.

15. Why probate is required in tenancy in common and not in joint tenancy?

16. What is the difference between contract rent and market rent? Why is this distinction

more important for investors purchasing existing office buildings than for investors

purchasing existing apartment complexes?

17. What is the difference between the potential gross income and the net gross income

18. Define the types of accrued depreciation and give an example of each type.

19. What is the difference between market value and investment value?

20. In contrast to stock markets, estimating the market value of real estate is complicated by

the unique characteristics of real estate markets. Explain.

Answer 1

(1): Every real estate development project involves both the public and the private sectors.

Yes, Real estate projects involve both the public and private sector projects. Private sector real estate developers have a public sector partner in every deal. Private sector projects have to buy raw material, that may come from public sector, Public sector may need some robotics technology that comes from private sector.

(2): Time plays crucial role in the real estate development process.

Yes, That is true. Time plays an important role in real estate development because money is involved. People invest their hard earned money into buying land, building, flats, commercial space etc. During the development process, there is no positive cash flow or return from the money invested. It needs thousands of dollars with no return during the construction period. So the construction should complete timely so that the property may generate returns.

(4): Real estate development involves a lot of risks, however, good developers know how to mitigate their risks. (Explain the nature and types of risks and the tools to mitigate them)

Real Estate risks- Risk is the uncertainty that may occur in future.

1. Real estate has price risk that is property prices may come down due to economic changes, properties may get unsold.
2. Interest rate risk is also there, interest on loan (taken to buy property) may increase then EMI will also increase.
3. Real estate companies as well as customers both have heavy debt.

Minimizing real estate risk: Some points are as following:

1. Customers should try to make heavy down payment so as to get rid of heavy debt and interest burden.
2. Customers should look for the property that they can make profitable by some improvements.
3. Location plays an important role, companies and customers should look for the area, that will be populated and commercialized in the future, it will increase price of the property.
4. Companies should give mortgage loan with proper documentation so that there may not be any chance of default.

What is the difference between variable and fixed expenses? Give two examples of each type of expenses.

Variable Expense- Are the expenses that vary or fluctuate as the level of production goes up. Variable expenses alter as the activity changes.

Example: Commission and Piece rate labor

Fixed Expense- As the name suggest, these expenses remain fixed regardless of change in production and sales numbers.

Example: Factory rent, Insurance, depreciation etc.