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Industry Jargon Interview Simulator

This quiz provides a quick snapshot analysis of your knowledge of basic real estate private equity terminology. The quiz provides terms used in proper context of a real estate private equity interview or conversation and assesses the users’ understanding of these terms.

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Question 1 of 10

1. Question
“We’ve been working on an acquisition of a grocery-anchored retail center in Queens for our Core-Plus fund. It’s about 7 years old, we’d put about 40% cash into it. Do you think it would be a good fit for a CMBS pool?” What is the interviewer talking about?
- A special insurance product that pools together like assets in disparate locations to lower property and casualty premiums
- An upscale tenant that offers swimming classes and aquatic fitness for children
- A form of financing that assesses a special levy on the property’s tax bill to pay for “environmentally friendly” building upgrades like better insulation, low-e glass, and high-efficiency HVAC
- A lending product that bundles commercial loans and sells them to investors
Correct

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Question 2 of 10

2. Question
“There’s a REIT buyer sniffing around our second hospitality fund, but we’re not sure we’re ready for an exit. How would you model a fund sale versus selling the assets piecemeal?” There’s a what looking at our fund?
- A Real Estate Industrial Tranche
- A Recurring Estimated Investment Tax
- A Real Estate Investment Trust
- A REtained Institutional Tract
Correct

Incorrect
Question 3 of 10

3. Question
“…so based on these cash flows, what is the impact of changing the first hurdle rate from 9% to 10%?” What is a hurdle rate?
- The rate of return at which the split between LPs and GP changes in the waterfall
- The minimum unlevered project IRR required to clear investment committee
- The level of tenant sales where percentage rent equals scheduled rent
- The rate of return that pushes investors into the next tax bracket
Correct

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Question 4 of 10

4. Question
“In your pro forma for this apartment complex make sure you reserve $250 per door per year for capex.” What does this mean?
- Make the repairs and maintenance budget per year equal to $250 per apartment unit
- Include $250 per year per apartment unit for the bellhop and concierge services
- Include a replacement reserve of $250 per apartment unit in the net cash available for debt service
- Offset rent income by $250 per apartment unit per year for income loss between move-out and move-in
Correct

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Question 5 of 10

5. Question
“We’ve been in talks with a big-name REIT to form a JV with our Op Fund (opportunistic) to develop these assets. The issue is, we’re more interested in a merchant build scenario than the REIT. We may have to convince investment committee to go it alone.” Why wouldn’t the REIT be aligned with the Op fund?
- Because the REIT is so much larger than the fund, there would be a “David-and-Goliath” situation that would give the REIT too much influence
- REITs are buy-and-hold investors, whereas op funds typically look to exit in 5-10 years, creating an investment strategy mismatch
- Many REITs are publicly traded, while most op funds are private. This could create a regulatory conflict
- REITs need to pay out dividends, while op funds primarily succeed at the exit. These differing motives could create conflicts in decision making
Correct

Incorrect
Question 6 of 10

6. Question
“We really need bench strength in our underwriting group because right now our Core fund it raising money twice as fast as we can place it.” Which of the following are characteristics of a Core fund?
- Exhibit excellent physical condition with no deferred maintenance
- Potential to achieve market rents
- Attract high-credit tenants
- Located in primary markets such as New York, Los Angeles, Chicago, San Francisco, London, Paris, etc.
Correct

Incorrect
Question 7 of 10

7. Question
“Our last three deals for our Op fund (opportunistic) have gotten outbid by two different Value-Add funds across town. I’ve never seen anything like it.” Why would a Value-Add fund be buying assets that are also of interest to an Opportunistic fund?
- Since there is some overlap in the expected yields in Value-Add and Opportunistic funds, some overlap in deals to be expected
- Without enough deal flow that meets the Value-add fund criteria, they’re forced to buy assets with a little more risk, but can afford to pay more
- “Irrational Exuberance” is setting in and a bubble is forming in REPE
- Most funds have a small asset allocation (10-20%) for non-conforming deals, so its likely just a string of bad luck against some funds that are trying to make their final purchases with their remaining capital
Correct

Incorrect
Question 8 of 10

8. Question
“We’re ambivalent as to whether we use CMBS or commercial banks, but it is easier to prepay a bank with yield maintenance than to defease a CMBS deal.” Which of the following is not true with regard to defeasance and yield maintenance?
- Both yield maintenance and defeasance require a lump-sum payment in order to compensate the lender for the lost yield resulting from redeploying the prepaid funds at today’s rates
- Defeasance includes the purchase of replacement assets to collateralize the loan in exchange for release of the real estate collateral, while yield maintenance does not
- There is no certain way to calculate yield maintenance or defeasance without contacting the lender for a quote or a capital markets firm to provide an estimate
- Even if interest rates today are higher than the loan interest rate, a yield maintenance fee may still exist if the loan is prepaid in part or in full
Correct

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Question 9 of 10

9. Question
“We’ve been tracking XYZ REIT’s NAV (net asset value) for a while, and we think they’re in a position where they will have to sell some assets. We need someone to dissect their portfolio and help us cherry-pick the best deals.” Which of the following are true about Net Asset Value?
- Net Asset Value is simply another term for its stock price if the REIT is publicly traded
- Net Asset Value is a GAAP (Generally Accepted Accounting Principles) concept and is reflected in the audited financial statements of the REIT
- Net Asset Value reflects management’s assessment of the value of the REIT’s assets less its liabilities
- Comparing Net Asset Value per share to the stock price of publicly traded REITs will give you insight into the market’s view of the REIT’s management and performance
Correct

Incorrect
Question 10 of 10

10. Question
“We don’t mess around raising money from individual investors, we go straight to the pension funds and life companies.” Rank the sources of investment capital from the typical largest check writers to the smallest.
- Endowments and Pension Funds
- Family offices
- Life insurance companies
- High net worth individuals
- Sovereign wealth funds
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