Deck 2: Real Estate System

Question 1

The difference between gross absorption and net absorption is best described as follows:

A) Gross absorption indicates the total amount of movement in the market while net absorption indicates the growth in overall demand.
B) Gross absorption indicates the growth in overall demand while net absorption indicates the total amount of movement in the market.
C) Gross absorption indicates demand for both Class A and Class B space, while net absorption refers only to demand for Class A space.
D) The wise student realizes that, at a deep and fundamental level, gross absorption and net absorption are really the same thing!

Answer 1

A

Question 2

One major cause for the natural vacancy rate to be greater than zero in a stable market is:

A) The irreversibility of the leasing decision causes landlords to take time to search for a good leasing deal.
B) Bankers make money from construction loans whether the space is leased or not.
C) Developers are stupid.
D) Landlords have to repair the apartments after the students' wild parties.

Answer 2

A

Question 3

Use the information in the following table to answer the subsequent questions:
$\begin{array}{|l|c|c|}\hline \underline{ Industry } & \frac{\text { Local }}{\underline{ Employment }} & \frac{\text { National }}{\underline{ Employment }} \\\\\hline \text { State \& Federal Government } & 50,000 & 10,000,000 \\\hline \text { Legal Services } & 13,000 & 2,000,000 \\\hline \begin{array}{l}\text { Computer Manufacturing \& } \\\text { Repair }\end{array} & 4,000 & 2,500,000 \\\hline \text { Total All Employment } & 200,000& 120,000,000 \\\hline\end{array}$

-What is the Location Quotient for state and federal government activities in this city?

A) 0.005.
B) 0.25.
C) 0.33
D) 3.00

Answer 3

3.00

Question 4

Congestion, pollution, crime, and high transportation costs are all examples of:

A) Centripetal forces
B) Centrifugal forces
C) Central Place Theory
D) Export multiplier

Question 5

The magnitude of the transportation costs in a production process of a given land use and the relative sensitivity of these transportation costs to distance from the city center determine:

A) The slope of the bid-rent function
B) The ease of transportation
C) The cost of real estate taxes
D) The optimal size of the buildings in the area

Question 6

Which of the following types of activity centers would you expect might have the highest land rent location premium in a polycentric city?

A) An "Edge City".
B) A Neighborhood Business District NBD).
C) Land adjacent to the city's major airport.
D) A very upscale, low-density residential neighborhood in the suburbs.

Question 7

According to Neighborhood Succession Theory, in a mature fully built up) neighborhood:

A) Location value tends to grow steadily over time in real terms net of inflation).
B) Location value tends to decline steadily over time in real terms.
C) Location value tends to remain about constant in real terms unless there are substantial changes in the city, under which case value might go in either direction.
D) Location value is determined purely by the average income of the residents.

Question 8

According to the rank/size rule Zipf's Law), the rank of a city's population should be approximated by knowledge of the following two factors:

A) The city's population and the population of the largest city in the system of cities
B) The city's population and the city's growth component
C) The city's growth component and the population of the largest city in the system of cities
D) The city's population and the objective rank of how nice the city is

Question 9

Use the information in the following table to answer the subsequent questions:
$\begin{array}{|l|c|c|}\hline \underline{ Industry } & \frac{\text { Local }}{\underline{ Employment }} & \frac{\text { National }}{\underline{ Employment }} \\\\\hline \text { State \& Federal Government } & 50,000 & 10,000,000 \\\hline \text { Legal Services } & 13,000 & 2,000,000 \\\hline \begin{array}{l}\text { Computer Manufacturing \& } \\\text { Repair }\end{array} & 4,000 & 2,500,000 \\\hline \text { Total All Employment } & 200,000& 120,000,000 \\\hline\end{array}$

-Suppose the most productive use of a particular site is as a manufacturing plant that will generate revenues of $12,000,000 per year with raw material costs and operating expenses other than net rent) of $7,000,000 per year, and construction costs for the plant and equipment) that can be paid for with a perpetual loan with interest of $3,000,000 per year. According to the residual theory, how much is this site worth in terms of annual land rent?

A) $20,000,000.
B) $12,000,000.
C) $10,000,000.
D) $2,000,000.

Question 10

As opposed to the concentric ring model of urban growth, the sector model dictates that similar land uses tend to:

A) Mix naturally over time, leading to a more integrated city
B) Lie at a similar distance from the center of the city
C) Cluster along rays or in pie-shaped wedges emanating from the center
D) Be dictated more by ephemeral political coincidence than by well considered plans

Question 11

Use the information in the following table to answer the subsequent questions:
$\begin{array}{|l|c|c|}\hline \underline{ Industry } & \frac{\text { Local }}{\underline{ Employment }} & \frac{\text { National }}{\underline{ Employment }} \\\\\hline \text { State \& Federal Government } & 50,000 & 10,000,000 \\\hline \text { Legal Services } & 13,000 & 2,000,000 \\\hline \begin{array}{l}\text { Computer Manufacturing \& } \\\text { Repair }\end{array} & 4,000 & 2,500,000 \\\hline \text { Total All Employment } & 200,000& 120,000,000 \\\hline\end{array}$

-In most American cities, improvement in transport and telecommunications technology transport cost reduction) tends to:

A) Increase land values throughout the metropolitan area.
B) Decrease land values throughout the metropolitan area.
C) Leave land values unchanged throughout the metropolitan area.
D) Decease land values in central locations and increase land values around the expanding periphery.

Question 12

The asking rent is $10/SF/yr. The landlord agrees to give the first year rent-free in a five-year lease, in return for a step-up in the rent to $12/SF/yr in the third year. What is the effective rent?

A) $8.00/SF/yr.
B) $9.20/SF/yr.
C) $11.20/SF/yr.
D) Insufficient information

Question 13

According to Property Life Cycle Theory, the two components of property value are:

A) Structure value plus land value.
B) Structure value plus agricultural opportunity value.
C) Construction cost plus land value.
D) Construction cost plus agricultural opportunity value.

Question 14

Rents will tend to trend upwards and new development will tend to occur in a particular city if:

A) The natural vacancy rate is higher than the average of other cities
B) The natural vacancy rate is lower than the average of other cities
C) The natural vacancy rate is below the current vacancy rate
D) The natural vacancy rate is above the current vacancy rate

Question 15

"Over the long run, the change in location value provides a theoretical ceiling to the average capital gain of the unlevered investor in already-built property…" This summarizes:

A) The property principle
B) The depreciation principle
C) The investment principle
D) The leverage principle

Question 16

According to Central Place Theory, concentrations of human activity e.g., cities in a country, shopping centers in a metropolitan area) will tend to be located:

A) On major waterways.
B) All clustered together in the center of the region.
C) Where there are the most environmental amenities.
D) About evenly-spaced, with some territory around each concentration point.

Question 17

The primary centralizing centripetal) forces acting on a city include the following, except:

A) Economies of scale
B) Economies of agglomeration
C) High population density
D) Positive locational externalities

Question 18

A certain market has 1,000,000 SF of vacant space, 500,000 SF under construction, and annual absorption of 750,000 SF. What is the "months supply" in this market?

A) 12 months.
B) 24 months.
C) 36 months.
D) With so little information the wise student would not hazard a guess about what might be the months supply in this market.

Question 19

Which are examples of incompatible adjacent land uses that display negative locational externalities?

A) Community shopping center and residential neighborhood.
B) Convention center and hotel.
C) Airport and industrial park.
D) Heavy industrial zone and up-scale residential neighborhood.

Question 20

Use the information in the following table to answer the subsequent questions:
$\begin{array}{|l|c|c|}\hline \underline{ Industry } & \frac{\text { Local }}{\underline{ Employment }} & \frac{\text { National }}{\underline{ Employment }} \\\\\hline \text { State \& Federal Government } & 50,000 & 10,000,000 \\\hline \text { Legal Services } & 13,000 & 2,000,000 \\\hline \begin{array}{l}\text { Computer Manufacturing \& } \\\text { Repair }\end{array} & 4,000 & 2,500,000 \\\hline \text { Total All Employment } & 200,000& 120,000,000 \\\hline\end{array}$

-Which of the three industries in the above table is not in the export sector of this locality?

A) State & Federal Government.
B) Legal Services.
C) Computer Manufacturing & Repair.
D) They all are in the export base.

Question 21

Suppose the current market value of both undeveloped sites is $1,500,000 each. On which site or sites is it currently profitable to develop?

A) Site A.
B) Site B.
C) Both sites A and B.
D) Neither site A nor B.

Question 22

Landowners demand a premium in the rent for developed property before they will be willing to develop agricultural land. According to Capozza and Helsley, this is know as the:

A) Growth premium
B) Land premium
C) Agriculture premium
D) Irreversibility premium

Question 23

Improvements in transportation infrastructure will tend to:

A) Increase the value of geographical location centrality
B) Reduce the value of geographical location centrality
C) Have no effect on the value of geographical location centrality
D) Cannot determine with the information given

Question 24

If the natural vacancy rate is 10% and the current vacancy rate is 15%, then you would expect:

A) Current rents are falling.
B) Current rents are rising.
C) Current rents are stable.
D) With so little information the wise student would not hazard a guess about what might be happening to current rents.

Question 25

If the largest city in an economically integrated region has a population of 10,000,000, then according to the rank-size rule the fifth-largest city in that region should have a population of:

A) 100,000.
B) 1,000,000.
C) 2,000,000.
D) 5,000,000.

Question 26

Use the following information to answer the subsequent questions. A simple monocentric city Roundville) has a population of 3,000,000 with a homogeneous density of 5 inhabitants per acre, and one person per household. Agricultural rents are $500/acre/yr, housing construction costs including developer profit) can be paid for with a perpetual loan charging interest of $5000/house/yr, and transportation costs are $250/person/yr per mile of distance from the center of the city. Recall that there are 640 acres per Mi².)
What is the annual transportation cost per household at the edge of Roundville?

A) $250.
B) $1,250.
C) $4,000.
D) $4,320.

Question 27

Use the following information to answer the subsequent questions. At site "A" the best current construction project is a retail plaza that would cost $3,000,000 to build exclusive of land cost) and would then generate net rents of $400,000/yr, expected to grow at 2% per year indefinitely. At site "B" the best current construction project is an office building that would generate net rents of $500,000 per year, expected to remain constant. Construction of the office building would cost $4,000,000 exclusive of land cost). Suppose investors require a cap rate current net income as percent of investment) equal to 10% minus the expected annual growth rate in the net income.
Based on the current best projects described above, which site is most valuable?

A) Site A.
B) Site B.
C) Both sites are equal in value.
D) Insufficient information to answer the question.

Question 28

Silicon Valley is an example of:

A) Economies of agglomeration.
B) Economies of scale.
C) The rank-size rule.
D) A planned community.

Question 29

Use the following information to answer the subsequent questions. A simple monocentric city Roundville) has a population of 3,000,000 with a homogeneous density of 5 inhabitants per acre, and one person per household. Agricultural rents are $500/acre/yr, housing construction costs including developer profit) can be paid for with a perpetual loan charging interest of $5000/house/yr, and transportation costs are $250/person/yr per mile of distance from the center of the city. Recall that there are 640 acres per Mi².)
What is the annual location premium rent per household in the center of Roundville?

A) $4,320.
B) $5,740.
C) $21,600.
D) $25,500.

Question 30

Use the following information to answer the subsequent questions. A simple monocentric city Roundville) has a population of 3,000,000 with a homogeneous density of 5 inhabitants per acre, and one person per household. Agricultural rents are $500/acre/yr, housing construction costs including developer profit) can be paid for with a perpetual loan charging interest of $5000/house/yr, and transportation costs are $250/person/yr per mile of distance from the center of the city. Recall that there are 640 acres per Mi².)
If Roundville's population increases by 10% but its density remains constant, approximately how much will its radius increase?

A) None.
B) 5%.
C) 10%.
D) 20%.

Question 31

If buildings are torn down and replaced on average every 75 years, and site acquisition costs are typically 25% of total development costs, then the average annual rate of property depreciation below the HBU value of the site is:

A) 0.0%/yr.
B) 1.1%/yr.
C) 1.8%/yr.
D) 2.2%/yr.

Question 32

An example of functional depreciation is:

A) Electrical conduits that are too small for modern computer-based wiring needs in an office building.
B) A leak in the roof.
C) A single-family home near a growing university, on a lot zoned for apartments.
D) Overgrown landscaping.

Question 33

The market indicator known as "months supply" is determined by all of the following except:

A) Vacancy
B) Construction
C) Net absorption
D) Point of time within the fiscal cycle

Question 34

Use the following information to answer the subsequent questions. A simple monocentric city Roundville) has a population of 3,000,000 with a homogeneous density of 5 inhabitants per acre, and one person per household. Agricultural rents are $500/acre/yr, housing construction costs including developer profit) can be paid for with a perpetual loan charging interest of $5000/house/yr, and transportation costs are $250/person/yr per mile of distance from the center of the city. Recall that there are 640 acres per Mi².)
What is the total annual property rent per acre of land in the center of Roundville?

A) $47,100.
B) $25,500.
C) $5,500.
D) $500.