Question 1

What term applies to third-party financing that is used between funds advanced by the permanent lender and funds needed to repay the construction loan?
A) Interim loan
B) Mini-perm financing
C) Gap financing
D) Partial financing

Accepted Answer

Gap financing, also known as bridge financing, is used to fill the gap between the funds advanced by the permanent lender and the funds needed to repay the construction loan. It is a short-term financing option typically used in real estate development projects.

Question 2

Mini-perm loans usually refer to financing:
A) At local coffers
B) For lease-up period
C) For construction and all subsequent periods
D) For construction, lease-up, and one or two subsequent years

Accepted Answer

Mini-perm loans are short-term financing options that cover the construction phase, the lease-up period, and typically extend for one or two years beyond that to stabilize the property before securing long-term financing.

Question 3

In comparison to permanent financing, the rates and rate variability for a construction loan would be: Interest Rates Interest Rate Variability
A) High Steady
B) High Fluctuating
C) Low Steady
D) Low Fluctuating

Accepted Answer

Construction loans typically have higher interest rates due to the increased risk and are more likely to have fluctuating rates because they are short-term and tied to the project's progress.

Question 4

Besides an estimate of costs, a construction loan submission package includes many other components. Which of the following is NOT one of those components?
A) Pro Forma Statement of Cash Flows for an investor's portfolio
B) Pro Forma Statement of Cash Flows
C) Pro Forma Operating Statement
D) Ratio and Sensitivity Analysis

Accepted Answer

A Pro Forma Statement of Cash Flows for an investor's portfolio is not typically included in a construction loan submission package, as it pertains to an investor's overall financial portfolio rather than the specific project being financed.

Question 5

Which of the following common contingencies is NOT usually included with a permanent financing agreement?
A) Completion date for construction phase
B) Minimum rent-up requirements
C) Materials used in construction phase
D) Cleanliness of work area

Accepted Answer

The answer of Which of the following common contingencies is...

Question 6

Which of the following is NOT one of the developer strategies mentioned in this chapter?
A) To sell and lease back the land
B) Owning and managing after sale
C) Sell after lease-up phase
D) Develop for lease in master-planned development

Accepted Answer

The strategy of selling and leasing back the land is not mentioned as a developer strategy in this chapter.

Question 7

The MOST common method of distributing funds provided by a construction loan is a:
A) Single lump sum of money at the closing of the loan
B) Single lump sum of money at the end of the construction project to reimburse the developer for the project's expenses and profit
C) Series of payments throughout the construction project to reimburse the developer for costs incurred since the previous payment
D) Series of payments throughout the construction project to reimburse the developer for anticipated expenses in the upcoming period

Accepted Answer

The most common method of distributing funds provided by a construction loan is a series of payments throughout the construction project to reimburse the developer for costs incurred since the previous payment. This is known as a draw schedule and it typically involves an inspection of the progress of the construction project before the release of funds. This method ensures that funds are released as needed and that the construction project is proceeding as planned. It also provides some protection for the lender by ensuring that the funds are being used for the intended purpose.

Question 8

Developers usually hold back about ___ percent of each progress payment.
A) 1
B) 10
C) 25
D) 75

Accepted Answer

Developers usually hold back about 10% of each progress payment as a retention amount to ensure that the contractor completes the work satisfactorily and rectifies any defects found during the defects liability period.

Question 9

In the context of a lease, percentage rents generally indicate that:
A) The tenant will pay a proportionate amount of rent for his space in comparison to the total net rentable area
B) In addition to a base rent, the lessor will receive a percentage of the tenant's cash flow above some break even point
C) The tenant will pay a rent that is a certain percentage of the national average
D) None of the above

Accepted Answer

Percentage rents typically involve the tenant paying a base rent in addition to a percentage of their cash flow or sales above a certain point. This allows the landlord to share in the success of the tenant's business. Option A describes a common form of rent calculation, but it is not specific to percentage rents. Option C is not a common practice in commercial leasing. Option D is not a valid answer because the question specifically asks about the concept of percentage rents.

Question 10

Interest on a construction loan is usually paid:
A) Up front at the beginning of the loan
B) Periodically over the life of the loan
C) In quarterly installments over the life of the loan
D) At the end of the loan

Accepted Answer

The answer of Interest on a construction loan is usually...

Question 11

Why would a developer be willing to manage a completed project even after it has been sold?
A) The developer knows the project better than other management companies and, therefore, could manage the property more efficiently
B) The developer could profit from the lucrative management fees being charges by management companies
C) Knowledge of the tenant's needs and the current leasing market might give the developer better insight with respect to future developments
D) All of the above

Accepted Answer

Developers may manage a project post-sale because they have intimate knowledge of the project, can earn management fees, and gain insights for future developments.

Question 12

Which of the following is FALSE regarding a construction loan?
A) It usually has a lower rate than does permanent financing
B) It is also known as interim loan
C) Hard costs can usually be financed
D) The entire land cost can not usually be financed

Accepted Answer

The answer of Which of the following is FALSE regarding...

Quiz 16: Financing Project Development

What term applies to third-party financing that is used between funds advanced by the permanent lender and funds needed to repay the construction loan?

Mini-perm loans usually refer to financing:

In comparison to permanent financing, the rates and rate variability for a construction loan would be: Interest Rates Interest Rate Variability

Besides an estimate of costs, a construction loan submission package includes many other components. Which of the following is NOT one of those components?

Which of the following common contingencies is NOT usually included with a permanent financing agreement?

Which of the following is NOT one of the developer strategies mentioned in this chapter?

The MOST common method of distributing funds provided by a construction loan is a:

Developers usually hold back about ___ percent of each progress payment.

In the context of a lease, percentage rents generally indicate that:

Interest on a construction loan is usually paid:

Why would a developer be willing to manage a completed project even after it has been sold?

Which of the following is FALSE regarding a construction loan?