CLP Financial Analysis & Reporting 3 — Questions and Answers
Question 1: A property has an NOI of $120,000 and was purchased for $1,500,000. Comparable properties sell at a 7% cap rate. What is the property's estimated market value?
- $1,200,000
- $1,714,286 (Correct answer)
- $1,500,000
- $1,620,000
Correct answer: $1,714,286
Market Value = NOI / Cap Rate = $120,000 / 0.07 = $1,714,286.
Question 2: In leasing financial analysis, 'economic vacancy' differs from 'physical vacancy' because it also accounts for:
- Units under renovation
- Rent concessions and loss-to-lease (Correct answer)
- Tenant improvement allowances
- Delinquent rent collections only
Correct answer: Rent concessions and loss-to-lease
Economic vacancy includes physical vacancy plus rent concessions, loss-to-lease, and other income reductions beyond simply empty units.
Question 3: Which document provides a snapshot of a property's assets, liabilities, and owner's equity at a specific point in time?
- Income Statement
- Cash Flow Statement
- Balance Sheet (Correct answer)
- Rent Roll
Correct answer: Balance Sheet
A balance sheet presents assets, liabilities, and equity at a specific date, providing a financial snapshot of the property.
Question 4: A leasing manager reviews a property where actual rents collected are lower than market rents for identical units. This difference is called:
- Vacancy loss
- Loss-to-lease (Correct answer)
- Bad debt expense
- Concession overage
Correct answer: Loss-to-lease
Loss-to-lease represents the difference between market rents and the actual rents currently being collected under existing leases.
Question 5: Which financial ratio is used to evaluate whether a property generates sufficient income to cover its debt obligations?
- Capitalization Rate
- Gross Rent Multiplier
- Debt Service Coverage Ratio (Correct answer)
- Operating Expense Ratio
Correct answer: Debt Service Coverage Ratio
The Debt Service Coverage Ratio (DSCR) = NOI / Annual Debt Service, and lenders use it to assess loan repayment capacity.
Question 6: When preparing a leasing budget, 'turns' or 'turnover costs' typically include:
- Leasing commissions paid to brokers only
- Cleaning, repairs, and make-ready costs between tenancies (Correct answer)
- Long-term capital improvement projects
- Annual property tax assessments
Correct answer: Cleaning, repairs, and make-ready costs between tenancies
Turn costs include cleaning, repairs, painting, and all make-ready expenses incurred to prepare a unit for a new tenant.
Question 7: A property's Operating Expense Ratio (OER) is 45%. If EGI is $800,000, what are total operating expenses?
- $320,000
- $360,000 (Correct answer)
- $400,000
- $440,000
Correct answer: $360,000
Operating Expenses = OER × EGI = 0.45 × $800,000 = $360,000.
CLP Financial Analysis & Reporting 3
A property has an NOI of $120,000 and was purchased for $1,500,000.
Comparable properties sell at a 7% cap rate.
What is the property's estimated market value?