Deck 17: Financing Land Development Projects

Question 1

The amount to be paid to the lender from each lot sale is included in the

A) Release Schedule
B) Development Agreement
C) Cost Breakdowns
D) Subcontracts

Answer 1

Release Schedule

Question 2

An option contract does not preclude the landowner from selling the property to someone else after the expiration date.

Answer 2

True

Question 3

Which of the following is the likely sequence of events in the land development process?

A) Inspect site,perform feasibility analysis,implement marketing program,purchase land and begin construction of improvements
B) Inspect site,purchase land and begin construction of improvements,perform feasibility analysis,implement marketing program
C) Inspect site,perform feasibility analysis,purchase land and begin construction of improvements,implement marketing program
D) Purchase land,perform feasibility analysis,perform preliminary market study,begin construction of improvements,implement marketing program

Answer 3

Inspect site,perform feasibility analysis,purchase land and begin construction of improvements,implement marketing program

Question 4

Which of the following was not stated as contributing to the complication of estimating amount of interest carry?

A) The loan is drawn and interest is calculated on drawn amount.
B) Revenue from each type of site varies.
C) The rate of repayment of a loan depends on when the parcel is sold.
D) Development loan interest rates are usually fixed while market rates fluctuate.

Question 5

Each parcel of land in a new development is selling for $15,000 and the total project revenue is estimated to be $5,000,000.The project lender has stated that the loan should be paid off when 80% of the total project revenue has been earned.The total loan amount is $3,500,000.What is the release price for each parcel?

A) $8,400
B) $13,215
C) $18,750
D) None of the above

Question 6

Which of the following is FALSE regarding the release price?

A) It is usually calculated to pay off the loan when the last lot is sold
B) It is usually calculated to pay off the loan before the last lot is sold
C) Increasing the release price usually lowers the lender's risk
D) Increasing the release price is likely to lower the investor's initial cash flow

Question 7

In most instances,a developer's repayment rate is set so that the development loan will be repaid at the exact point that 100% of total project revenue is realized.

Question 8

Generally,which of the following is NOT true of interest rate risk management techniques?

A) Borrowers can protect themselves from upward movements in interest rates by using interest rate caps
B) Borrowers can protect themselves from upward movements in interest rates by using interest rate futures contracts
C) Borrowers can benefit from downward movements in interest rates by using interest rate caps
D) Borrowers can benefit from downward movements in interest rates by using interest rate futures contracts

Question 9

Which of the following might impact the density of housing in a land development project?

A) The price paid for the land by the developer
B) The terrain of the land
C) The target market's preferences regarding density
D) All of the above

Question 10

The release schedule refers to a schedule of expiring leases for existing tenants.

Question 11

Usually,a lender does not require a developer to submit a schedule of estimated cash flows prior to approving a land development loan.

Question 12

The land development industry is best characterized by which of the following statements?

A) The land development industry is dominated by relatively few national competitors
B) The land development industry is highly fragmented,localized,and extremely competitive
C) Land development and project development are synonymous
D) The production technologies and market risks involved in land development are essentially the same as those in project development

Question 13

A futures instrument,such as a T-bill,can be used to hedge a cash or a spot instrument such as the prime rate,where the two instruments are not perfectly correlated.What type of hedge is this referred to as?

A) A perfect hedge
B) A straight hedge
C) A cross hedge
D) None of the above

Question 14

Which of the following costs should NOT be included in a net present value analysis of a land development project?

A) Land purchase price
B) Property tax
C) General overhead such as personnel costs
D) Developer's profit

Question 15

When financing land development,the lender generally requires the developer to submit which of the following?

A) A detailed breakdown of project cost
B) Required zoning changes
C) Bank references for the general contractor to be used on the project
D) All of the above

Question 16

A transaction in which two firms trade individual financing advantages to produce more favorable borrowing terms for each is know as a(n):

A) interest rate swap.
B) sequential short hedge.
C) cross hedge.
D) allof the above.

Question 17

Generally,which of the following is NOT true of an option contract?

A) An option contract allows the developer to perform a preliminary market study and feasibility analysis
B) If the developer decides to purchase a property,the price of an option is applied towards the price of the property
C) If the developer decides not to purchase the property,the landowner will refund any money paid for the option
D) An option contract provides the developer with the assurance that a property will not be sold over the course of the option period

Question 18

It is proper to include an estimate for developer profit as a cost of development when projecting net cash flows and evaluating whether a required rate of return will be met.

Question 19

By using an option contract,a developer may profit from an appreciation in the property's value over the option period.

Question 20

An analysis of whether land can be purchased and developed profitably is known as __________.

A) Financial Analysis
B) Feasibility Study
C) Turnkey Study
D) Project Profitability

Question 21

It is illegal for the lender to hold back funds from the developer.

Question 22

A developer must sell all of the lots in a development project and repay the entire development loan before any of the new property owners can receive a clear title.

Question 23

It is common for a developer to hold back funds to be sure that subcontractors perform all work completely before making final payment.

Question 24

In order to obtain a land development loan,the developer is required usually to purchase title insurance.