REA Portfolio Management & Asset Strategy 2 — Questions and Answers
Question 1: Which asset management strategy involves acquiring underperforming properties, improving them, and selling at a higher valuation?
- Value-add strategy (Correct answer)
- Core-plus strategy
- Opportunistic strategy
- Core strategy
Correct answer: Value-add strategy
Value-add strategies target properties with below-market rents, deferred maintenance, or high vacancy that can be repositioned to increase NOI and value.
Question 2: What is the purpose of a 'hold-sell analysis' in real estate portfolio management?
- Comparing the NPV of holding a property against the net proceeds from selling it (Correct answer)
- Determining the maximum allowable loan balance at a given cap rate
- Forecasting demand for new development based on absorption data
- Benchmarking a property's NOI against comparable assets in the market
Correct answer: Comparing the NPV of holding a property against the net proceeds from selling it
A hold-sell analysis compares the risk-adjusted returns from continued ownership against redeployment of sale proceeds into alternative investments.
Question 3: An asset manager implements a 'lease-up' strategy on a recently acquired office building. What is the primary goal?
- Filling vacant space with creditworthy tenants to stabilize income and increase value (Correct answer)
- Refinancing existing debt to lower the interest rate and improve cash flow
- Converting the building to a higher and better use such as residential
- Selling non-core floors of the building as condominiums
Correct answer: Filling vacant space with creditworthy tenants to stabilize income and increase value
A lease-up strategy focuses on attracting tenants to vacant space, stabilizing occupancy, and thereby converting a value-add asset to a core-like investment.
Question 4: What does 'net asset value' (NAV) represent in a non-traded real estate investment trust (REIT)?
- The estimated per-share value based on the appraised value of the underlying real estate (Correct answer)
- The total revenue generated by the REIT over the prior fiscal year
- The market capitalization calculated from publicly traded share prices
- The REIT's total assets minus total liabilities as reported on the balance sheet
Correct answer: The estimated per-share value based on the appraised value of the underlying real estate
NAV per share reflects independent appraisals of the REIT's properties minus liabilities, providing an estimated fair value for non-traded shares.
Question 5: In real estate portfolio construction, what does a 'strategic asset allocation' determine?
- Target weightings to property types and geographies based on long-term return and risk objectives (Correct answer)
- The specific properties to acquire and dispose of in the current quarter
- The optimal loan-to-value ratio for each asset in the portfolio
- The timing of capital calls to limited partners in a closed-end fund
Correct answer: Target weightings to property types and geographies based on long-term return and risk objectives
Strategic asset allocation sets the long-term target mix across sectors, geographies, and strategies to achieve the investor's risk-return goals.
Question 6: What is a 'preferred return' in a real estate limited partnership structure?
- A minimum return threshold that LPs receive before the GP earns carried interest (Correct answer)
- The cap rate applied to the property to determine acquisition price
- The interest rate charged on any capital contributions made after initial closing
- A guaranteed dividend paid to limited partners regardless of property performance
Correct answer: A minimum return threshold that LPs receive before the GP earns carried interest
The preferred return is a priority return (typically 6–8%) earned by LPs on invested capital before the GP participates in profits through carried interest.
REA Portfolio Management & Asset Strategy 2
Which asset management strategy involves acquiring underperforming properties, improving them, and selling at a higher valuation?