Deck 23: Development: The Dynamics of Creating Value

Question 1

While the risks of construction lending may be less in a number of respects than those associated with land acquisition, banks still require a premium in their lending rate as compensation for the risks involved. For construction loans, banks typically require a premium above LIBOR that ranges from:

A) 0-50 basis points
B) 50-150 basis points
C) 150-250 basis points
D) 250-350 basis points

Answer 1

C

Question 2

Suppose that a developer pre-leases space to a financially strong, national tenant such as Home Depot, without having yet built the structure in which they will be leasing space. This is more commonly referred to as a:

A) ground lease
B) build-to-suit
C) design-build
D) contract for deed

Answer 2

B

Question 3

There are a number of ways that a developer can finance the establishment of site control, each with its own advantages and disadvantages. Which of the following methodologies calls for only the initial land rent to be paid out before development actually gets under way?

A) Joint venture
B) Option
C) Contract for deed
D) Ground lease

Answer 3

D

Question 4

With a site under control, the developer will begin to evaluate the feasibility of the project. The main tool that a developer will use in determining the financial feasibility of a project is:

A) Net present value (NPV) analysis
B) Cost approach to valuation
C) Repeat-sales approach
D) Direct capitalization

Question 5

Since the architect can be involved in various stages of the development process, there are a number of methods used to compensate him for his services, each of which may depend on the particular phase of development. If the architect provides pre-design services or schematics early in the development process, he will typically be compensated:

A) on an hourly basis
B) as a percentage of construction expenses
C) by a fixed fee plus expenses
D) only if he stays on the project through completion of the construction phase

Question 6

The expertise of several types of engineers must be coordinated by the architect in bringing together the final structure design. Which of the following types of engineers is responsible for specifications to achieve safety and stability for a structure's foundation?

A) Soils engineer
B) Structural engineer
C) Mechanical engineer
D) Civil engineer

Question 7

In each stage of the development process, the developer faces risks that can have a profound impact on the success of the particular project. Which of the following risks is of primary concern after the construction phase has been completed?

A) Environmental risk
B) Title risk
C) Market risk
D) Permitting risk

Question 8

Once a specific use has been chosen for a site, the first stage in the development process, often considered the "entry ticket to development," is:

A) establishing site control
B) feasibility analysis
C) financing
D) construction

Question 9

With a multitude of players involved in the development process, it is important to understand where they participate within the various stages of development. Which of the following individuals is the least likely to be involved in the design stage of development?

A) General contractor
B) Landscape architect
C) Civil engineer
D) Land planner

Question 10

Development involves a complex organization of many moving parts. Which of the following choices is often viewed as the single greatest cause of project delays and cost overruns?

A) Obtaining permits
B) Financing
C) Effective communication between developer, architect, and engineer
D) Selecting the architect

Question 11

A developer's selection of an architect is a vital step in the development process as the architect fulfills a number of important roles throughout the life of the project. As compensation for contributions in the design phase, the architect is often given a percentage of the construction cost. For moderately complex designs, the average compensation will be:

A) 1 to 2%
B) 3 to 7%
C) 7 to 10%
D) greater than 10%

Question 12

When construction costs exceed the amount of the construction loan, a developer may seek to cover the gap using mezzanine financing. All of the following statements regarding mezzanine debt are true EXCEPT:

A) Mezzanine debt use is less expensive than normal construction financing
B) Mezzanine debt use avoids dilution of equity returns
C) Mezzanine debt use is less expensive than equity financing
D) Mezzanine debt use avoids the foreclosure process in the case of default

Question 13

Suppose that a development group would like to determine if the local zoning and land-use ordinances will permit the type of development they desire. However, they do not want to be obligated to purchase the property if they find that their proposed development will not be permitted. To gain control of the site without being obligated to perform, the development group should purchase which of the following?

A) Ground lease
B) Option
C) Fast-track
D) Floor loan

Question 14

The strength of a successful developer lies in his or her ability to select design professionals and engineers that play vital roles in the project's plan and completion. Which of the following individuals would be most concerned, on a general level, with the design aesthetics, optimal use and preservation of the site, traffic flows, utility systems and drainage systems?

A) Land planner
B) Landscape architect
C) Mechanical engineer
D) Environmental agent

Question 15

The developer will face a variety of costs throughout the project's life. Which of the following would be classified as a soft cost?

A) Legal fees of the permitting process
B) Costs of materials
C) Labor cost of subcontractors for construction
D) Cost of land

Question 16

In more complex development projects, a developer may choose to combine the roles of the architect and general contractor into one in order to mitigate design-cost conflicts that otherwise must be negotiated when plans are revised. This arrangement is more commonly referred to as a:

A) build-to-suit
B) subordination agreement
C) design-build
D) fast-track

Question 17

Since banks seldom loan 100 percent of construction costs, developers often turn to mezzanine financing to obtain necessary funds. With mezzanine debt, which of the following entities is typically pledged as collateral to the lender?

A) Land
B) Ownership shares in the development entity
C) Personal assets of the developer
D) Construction materials

Question 18

While uncertainties involving the multitude of players and stages in the development process provide a great deal of risk, market cycles tend to compound these risks. Out of the four phases of a market cycle, which would be the most desirable point for a developer to enter the market?

A) Trough
B) Expansion
C) Peak
D) Decline

Question 19

The majority of financing for the acquisition of land for development is most likely to come from which of the following parties?

A) Developer
B) Banks
C) Pooled equity of a limited liability corporation (LLC)
D) Insurance companies

Question 20

Even the smallest building project involves a multitude of separate contractors to complete construction. Therefore, it becomes difficult for the developer to monitor the construction process. Which of the following individuals serves as the developer's liaison and representative on the project site?

A) General contractor
B) Construction manager
C) Land planner
D) Subcontractor

Question 21

Which of the following types of engineers is responsible for determining the requisite skeleton to maintain the building's integrity?

A) Soils engineer
B) Structural engineer
C) Mechanical engineer
D) Civil engineer

Question 22

Which of the following types of engineers is responsible for providing specifications and design for the HVAC system and other building systems?

A) Soils engineer
B) Structural engineer
C) Mechanical engineer
D) Civil engineer

Question 23

Which of the following types of engineers is responsible for designing on-site utility systems, including sewers, water, streets, parking, and site grading?

A) Electrical engineer
B) Structural engineer
C) Mechanical engineer
D) Civil engineer

Question 24

In considering the main components of a construction budget, which costs would be expected to constitute the largest portion of a development project's expense?

A) Land costs
B) Hard construction costs
C) Soft construction costs
D) Marketing costs

Question 25

Which of the following types of engineers is responsible for designing the power sources and distribution system?

A) Electrical engineer
B) Structural engineer
C) Mechanical engineer
D) Civil engineer

Question 26

The construction budget has six main components: land costs, hard costs, construction soft costs, marketing soft costs, developer's fee, and total construction financing costs. Which of the following would be considered a hard cost?

A) Carry costs
B) Costs of material for construction
C) Legal fees of the permitting process
D) Developer fees

Question 27

Which of the following individuals focuses on the topography, soil, and vegetation that are the context for a structure, with the goal of giving a harmonious and enhancing immediate setting for the structure?

A) Land planner
B) Landscape architect
C) Mechanical engineer
D) Environmental agent

Question 28

The second stage of the development process requires an analysis of the project's feasibility. The developer will typically begin this stage of the development process with which of the following types of analysis?

A) Financial feasibility
B) Environmental feasibility
C) Legal feasibility
D) Political feasibility

Question 29

After construction has been completed, a developer may decide to seek additional financing. If current interest rates are relatively high, but the developer expects them to decline in the near future, the developer would most likely seek financing in the form of a:

A) subordination agreement
B) miniperm loan
C) take-out commitment loan
D) floor loan

Question 30

Based on your understanding of the relation between risk and the phases of an income producing property's life, which phase would you expect to entail the highest risk?

A) Development and construction phase
B) Lease-up stage
C) Stable operation phase
D) All three stages of a property's life have similar and equal risk

Question 31

When a developer decides to break down the project design into sequential phases and begins construction before the last phases of the design are complete, this procedure is more commonly referred to as

A) build-to-suit construction
B) coordination construction
C) design-build construction
D) fast-track construction

Question 32

For all but the largest of developers, the marketing and leasing of the project will be through an external broker. Given their special knowledge of the target market, it would be most beneficial for the developer to bring the broker into the development process during which of the following stages?

A) Design
B) Financing
C) Construction
D) Operation