Question 1

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.
-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?

Accepted Answer

The answer of Use the following information to answer the...

Question 2

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:

Accepted Answer

According to Capozza and Helsley, the concept is known as the "irreversibility premium." This term reflects the additional cost or premium that landowners require to compensate for the irreversible decision of converting agricultural land into developed property.

Question 3

Improvements in transportation infrastructure will tend to:

Accepted Answer

Improvements in transportation infrastructure make it easier and more efficient to travel or transport goods, reducing the importance of being centrally located. This is because better transportation systems can offset the disadvantages of being located further from central areas, making peripheral locations more accessible and potentially valuable.

Question 4

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

Accepted Answer

When the current vacancy rate is higher than the natural vacancy rate, it typically indicates a surplus of available properties relative to demand, which often leads to falling rents as landlords try to attract tenants.

Question 5

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:

Accepted Answer

The rank-size rule suggests that the nth largest city in a region is 1/n the size of the largest city. Therefore, the fifth-largest city would be 1/5 the size of the largest city, which is 10,000,000 / 5 = 2,000,000.

Question 6

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 MiS1U1P12S1S1P0.)
-What is the annual transportation cost per household at the edge of Roundville?

Accepted Answer

To find the annual transportation cost per household at the edge of Roundville, we first need to determine the radius of the city. With a population of 3,000,000 and a density of 5 inhabitants per acre, the total area in acres is 3,000,000 / 5 = 600,000 acres. Since there are 640 acres per square mile, the area in square miles is 600,000 / 640 = 937.5 square miles. The formula for the area of a circle is A = πr^2, where A is the area and r is the radius. Solving for r gives us r = sqrt(A/π) = sqrt(937.5/π) ≈ 17.3 miles. The annual transportation cost per household at the edge (17.3 miles from the center) is 17.3 miles * $250/mile/person = $4,325. Since the options are rounded, the closest option is D) $4,320.

Question 7

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?

Accepted Answer

The value of each site can be calculated using the formula for a perpetuity, adjusted for growth in the case of Site A. For Site A, the value is calculated as $400,000 / (0.10 - 0.02) = $5,000,000. For Site B, the value is $500,000 / 0.10 = $5,000,000. However, since Site A costs $3,000,000 to build and Site B costs $4,000,000, Site A is more valuable because it offers the same return for a lower investment.

Question 8

Silicon Valley is an example of:

Accepted Answer

Silicon Valley is an example of economies of agglomeration, where companies and industries benefit from being located near each other, sharing resources, ideas, and talent.

Question 9

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 MiS1U1P12S1S1P0.)
-What is the annual location premium rent per household in the center of Roundville?

Accepted Answer

The annual location premium rent per household in the center of Roundville is $4,320. This is because the agricultural rent is $500/acre/yr, and the housing construction costs can be paid for with a perpetual loan charging interest of $5000/house/yr. The transportation costs are $250/person/yr per mile of distance from the center of the city. So, the total annual cost of living in the center of Roundville is $500 + $5000 + $250 = $5750. The annual location premium rent is the difference between the total annual cost of living in the center of Roundville and the total annual cost of living in the suburbs. The total annual cost of living in the suburbs is $500 + $250 = $750. So, the annual location premium rent is $5750 - $750 = $4,320.

Question 10

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 MiS1U1P12S1S1P0.)
-If Roundville's population increases by 10% but its density remains constant, approximately how much will its radius increase?

Accepted Answer

The radius will increase by approximately 5% because the population increase of 10% with constant density means the area must increase by 10%. Since the area of a circle (representing the city) is proportional to the square of its radius, a 10% increase in area leads to a square root increase in radius, which is approximately a 5% increase (√1.10 ≈ 1.05).

Question 11

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:

Accepted Answer

The building depreciates over 75 years, and if site acquisition costs are 25% of total costs, then the building represents 75% of the total cost. The annual depreciation rate is 75% divided by 75 years, which equals 1.0%/yr. However, since the building depreciates to zero, the average annual rate of property depreciation is 1.8%/yr.

Question 12

An example of functional depreciation is:

Accepted Answer

Functional depreciation refers to a loss in value due to factors that make the property less functional or desirable, such as outdated or inadequate facilities. Electrical conduits that are too small for modern computer-based wiring needs in an office building are an example of this, as they make the building less suitable for current technological requirements.

Question 13

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

Accepted Answer

"Months supply" in the real estate market is calculated based on current inventory levels (vacancy), the rate at which new properties are being added to the market (construction), and the rate at which available properties are being sold or leased (net absorption). It does not directly consider the point of time within the fiscal cycle, as this is more related to broader economic conditions rather than the specific supply-demand dynamics in the real estate market.

Question 14

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 MiS1U1P12S1S1P0.)
-What is the total annual property rent per acre of land in the center of Roundville?

Accepted Answer

The total annual property rent per acre at the center of Roundville is calculated by considering the agricultural rent, housing construction costs, and transportation costs. The agricultural rent is $500/acre/yr. The housing construction cost is $5000/house/yr, and with 5 inhabitants per acre, this translates to $25,000/acre/yr. Transportation costs are $0 at the center. Therefore, the total rent is $500 + $25,000 = $25,500/acre/yr.

Quiz 2: Real Estate System