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2020CFA二级课后习题 另类
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Practice Problems 67
PRACTICE PROBLEMS
The following information relates to Questions
1–12
Amanda Rodriguez is an alternative investments analyst for a US investment manage-
ment rm, Delphinus Brothers. Delphinus’ Chief Investment Ocer, Michael Tang,
has informed Rodriguez that he wants to reduce the amount invested in traditional
asset classes and gain exposure to the real estate sector by acquiring commercial
property in the United States. Rodriguez is to analyze potential commercial real estate
investments for Delphinus Brothers. Selected data on three commercial real estate
properties is presented in Exhibit1.
Exhibit1 Selected Property Data
Property #1 Property #2 Property #3
Property Type
Downtown Oce
Building
Grocery- Anchored Retail
Center
Multi- Family
Building
Location New York, NY Miami, FL Boston, MA
Occupancy 90.00% 93.00% 95.00%
Square Feet or Number of Units 100,000 sf 205,000 sf 300 units
Gross Potential Rent $4,750,000 $1,800,000 $3,100,000
Expense Reimbursement Revenue $333,333 $426,248 $0
Other Income (includes % Rent) $560,000 $15,000 $45,000
Potential Gross Income $5,643,333 $2,241,248 $3,145,000
Vacancy Loss ($564,333) ($156,887) ($157,250)
Eective Gross Income $5,079,000 $2,084,361 $2,987,750
Property Management Fees ($203,160) ($83,374) ($119,510)
Other Operating Expenses ($2,100,000) ($342,874) ($1,175,000)
Net Operating Income (NOI) $2,775,840 $1,658,113 $1,693,240
Rodriguez reviews the three properties with Tang, who indicates that he would
like her to focus on Property #1 because of his prediction of robust job growth in
New York City over the next ten years. To complete her analysis, Rodriquez assembles
additional data on Property #1, which is presented in Exhibits 2, 3 and 4.
As part of the review, Tang asks Rodriguez to evaluate nancing alternatives to
determine if it would be better to use debt nancing or to make an all cash purchase.
Tang directs Rodriguez to inquire about terms with Richmond Life Insurance Company,
a publicly traded company, which is an active lender on commercial real estate prop-
erty. Rodriquez obtains the following information from Richmond Life for a loan on
Property #1: loan term of 5 years, interest rate of 5.75% interest- only, maximum loan
to value of 75%, and minimum debt service coverage ratio of 1.5x.
© 2012 CFA Institute. All rights reserved.
© CFA Institute. For candidate use only. Not for distribution.
© CFA Institute. For candidate use only. Not for distribution.
Reading 39
Private Real Estate Investments68
Exhibit2 6- Year Net Operating Income (NOI) and DCF Assumptions for
Property #1
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
NOI $2,775,840 $2,859,119 $2,944,889 $3,033,235 $3,124,232 $3,217,959
DCF Assumptions
Investment Hold Period 5 years
Going- in Cap Rate 5.25%
Terminal Cap Rate 6.00%
Discount Rate 7.25%
Income/Value Growth Rate Constant
Exhibit3 Sales Comparison Data for Property #1
Variable Property 1 Sales Comp A Sales Comp B Sales Comp C
Age (years) 10 5 12 25
Condition Good Excellent Good Average
Location Prime Secondary Secondary Prime
Sale price psf
$415 psf $395 psf $400 psf
Adjustments
Age (years)
–10% 2% 10%
Condition
–10% 0% 10%
Location
15% 15% 0%
Total Adjustments –5% 17% 20%
Exhibit4 Other Selected Data for Property #1
Land Value $7,000,000
Replacement Cost $59,000,000
Total Depreciation $5,000,000
After reviewing her research materials, Rodriguez formulates the following two
conclusions:
Conclusion 1 Benets of private equity real estate investments include own-
ers’ ability to attain diversication benets, to earn current
income, and to achieve tax benets.
© CFA Institute. For candidate use only. Not for distribution.
© CFA Institute. For candidate use only. Not for distribution.
Practice Problems 69
Conclusion 2 Risk factors of private equity real estate investments include
business conditions, demographics, the cost of debt and equity
capital, and nancial leverage.
1 Which of the following is most likely accurate regarding Property #2 described
in Exhibit1?
A Operating expense risk is borne by the owner.
B e lease term for the largest tenant is greater than three years.
C ere is a signicant amount of percentage rent linked to sales levels.
2 Based upon Exhibits 2, 3 and 4, which of the following statements is most accu-
rate regarding the valuation of Property #1?
A e cost approach valuation is $71,000,000.
B e adjusted price psf for Sales Comp B is $423 psf.
C e terminal value at the end of year 5 in the income approach is
$53,632,650.
3 Based on Exhibit2, the growth rate of Property #1 is closest to:
A 0.75%
B 1.25%.
C 2.00%.
4 Based on Exhibit2, the value of Property #1 utilizing the discounted cash ow
method is closest to:
A $48,650,100.
B $49,750,900.
C $55,150,300.
5 Based on Exhibit2, relative to the estimated value of Property #1 under the dis-
counted cash ow method, the estimated value of Property #1 using the direct
capitalization method is:
A equal.
B lower.
C higher.
6 Based upon Exhibits 1 and 3, the estimated value of Property #1 using the sales
comparison approach (assigning equal weight to each comparable) is closest to:
A 40,050,000.
B 40,300,000.
C 44,500,000.
7 In the event that Delphinus purchases Property #2, the due diligence process
would most likely require a review of:
A all tenant leases.
B tenant sales data.
C the grocery anchor lease.
8 Compared to an all- cash purchase, a mortgage on Property #1 through
Richmond Life would most likely result in Delphinus earning:
A a lower return on equity.
B a higher return on equity.
C the same return on equity.
© CFA Institute. For candidate use only. Not for distribution.
© CFA Institute. For candidate use only. Not for distribution.
Reading 39
Private Real Estate Investments70
9 Assuming an appraised value of $48,000,000, Richmond Life Insurance
Company’s maximum loan amount on Property #1 would be closest to:
A $32,000,000.
B $36,000,000.
C $45,000,000.
10 Rodriguez’s Conclusion 1 is:
A correct.
B incorrect, because tax benets do not apply to tax- exempt entities.
C incorrect, because private real estate is highly correlated to stocks.
11 Rodriguez’s Conclusion 2 is:
A correct.
B incorrect, because ination is not a risk factor.
C incorrect, because the cost of equity capital is not a risk factor.
12 Richmond Life Insurance Company’s potential investment would be most likely
described as:
A private real estate debt.
B private real estate equity.
C publicly traded real estate debt.
The following information relates to Questions
13–28
First Life Insurance Company, Ltd., a life insurance company located in the United
Kingdom, maintains a stock and bond portfolio and also invests in all four quadrants
of the real estate market; private equity, public equity, private debt, and public debt.
Each of the four real estate quadrants has a manager assigned to it. First Life intends
to increase its allocation to real estate. e Chief Investment Ocer (CIO) has
scheduled a meeting with the four real estate managers to discuss the allocation to
real estate and to each real estate quadrant. Leslie Green, who manages the private
equity quadrant, believes her quadrant oers the greatest potential and has identied
three investment properties to consider for acquisition. Selected information for the
three properties is presented in Exhibit1.
Exhibit1 Selected Information on Potential Private Equity Real Estate Investments
Property description
Property
A B C
Single Tenant Oce Shopping Center Warehouse
Size (square meters) 3,000 5,000 9,000
Lease type Net Gross Net
Expected loan to value ratio 70% 75% 80%
Total economic life 50 years 30 years 50 years
Remaining economic life 30 years 23 years 20 years
© CFA Institute. For candidate use only. Not for distribution.
© CFA Institute. For candidate use only. Not for distribution.
Practice Problems 71
Property description
Property
A B C
Single Tenant Oce Shopping Center Warehouse
Rental income (at full occupancy) £575,000 £610,000 £590,000
Other income £27,000 £183,000 £29,500
Vacancy and collection loss £0 £61,000 £59,000
Property management fee £21,500 £35,000 £22,000
Other operating expenses £0 £234,000 £0
Discount rate 11.5% 9.25% 11.25%
Growth rate 2.0% See Assumption 2 3.0%
Terminal cap rate 11.00%
Market value of land £1,500,000 £1,750,000 £4,000,000
Replacement costs
Building costs £8,725,000 £4,500,000 £12,500,000
Developer’s prot £410,000 £210,000 £585,000
Deterioration – curable and incurable £4,104,000 £1,329,000 £8,021,000
Obsolescence
Functional £250,000 £50,000 £750,000
Locational £500,000 £200,000 £1,000,000
Economic £500,000 £100,000 £1,000,000
Comparable adjusted price per square meter
Comparable Property 1 £1,750 £950 £730
Comparable Property 2 £1,825 £1,090 £680
Comparable Property 3 £1,675 £875 £725
To prepare for the upcoming meeting, Green has asked her research analyst, Ian
Cook, for a valuation of each of these properties under the income, cost and sales
comparison approaches using the information provided in Exhibit1, and the following
two assumptions:
Assumption 1 e holding period for each property is expected to be ve
years.
Assumption 2 Property B is expected to have the same net operating income
for the holding period due to existing leases, and a one- time
20% increase in year 6 due to lease rollovers. No further growth
is assumed thereafter.
In reviewing Exhibit1, Green notes the disproportionate estimated obsolescence
charges for Property C relative to the other properties and asks Cook to verify the
reasonableness of these estimates. Green also reminds Cook that they will need to
conduct proper due diligence. In that regard, Green indicates that she is concerned
whether a covered parking lot that was added to Property A encroaches (is partially
located) on adjoining properties. Green would like for Cook to identify an expert and
present documentation to address her concerns regarding the parking lot.
Exhibit1 (Continued)
© CFA Institute. For candidate use only. Not for distribution.
© CFA Institute. For candidate use only. Not for distribution.
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