Significant tax benefits can be gained by using an alternative financing arrangement for commercial property transactions. When the seller allows the buyer to pay the purchase price over a number of years, recognition of the taxable gain can be spread over several years, thereby reducing the present value of the tax payments. This type of financing arrangement is commonly referred to as a(n):
D. The use of financial leverage by real estate investors makes the realized return on equity more sensitive to changes in rental rates and resale values.
One of the main differences between residential mortgage loans and permanent financing of commercial real estate lies in the allocation of liability in the case of default. In commercial real estate, a "bankruptcy remote" special-purpose entity is created that shields the actual borrower from personal liability. When a lender cannot lay claim to the personal assets of the defaulted borrower, this type of loan is commonly referred to as a:
An alternative vehicle for financing commercial property involves having the lender acquire an ownership (equity) interest in the property by supplying a portion of the required equity capital in addition to providing the permanent debt financing. This type of financing arrangement is commonly referred to as a(n):
While balloon mortgage loan payments are typically based on a 30-year amortization schedule, the loan actually matures in either 3, 5, 7, or 10 years. The relatively short loan term on a balloon mortgage reduces the lender's exposure to which of the following risks?
In contrast to residential mortgage loans, most fixed-rate commercial mortgages do not allow borrowers to freely prepay the principal on their loan. Which of the following prepayment penalties ties the penalty that borrowers pay to how far interest rates have declined since origination?
Relative to residential loans, the underwriting process for commercial loans is more complicated. The commercial loan underwriting process focuses first on which of the following?
Because opportunity frontiers move out at a decreasing rate—greater investment per unit of sales lowers costs at a decreasing rate —while finance frontiers fan out proportionately—the margins, growth rates locus forms a concave curve containing a maximum margin, growth rate combination.
Organization requirements (formerly called “business requirements” by NIST, and variously called “strategic requirements” and sometimes “market requirements” under other risk management frameworks) include the following sort of matters, which are visible at the executive level:
Following the work of Yee and Grossman (1990), a heat exchanger network is developed in order to minimize the network’s annual cost. The optimum network configuration is shown in Figure 3. For the purpose of discussion, Figure 4 displays an alternative network. A table summarizing the financial and process requirements for each design is also presented. The method for estimating the safety rating is presented in the next section.
Heat exchangers are one of the most popular, if not the most popular, equipment in plants. Within heat exchangers, shell and tube heat exchangers are the most popular type of exchanger. Thus, by the sheer number of exchangers in a plant, designing for tube rupture scenarios should not be overlooked.
The reason being is that Design #2 is less prone to the possibility of a tube rupture compromising the integrity of the heat exchanger. One of the exchangers in Design #1 has a very high tube side pressure (100 bar) in relation to its shell side pressure (15 bar).
Preparing a budget is an integral part of establishing the business case for a project. An evaluation of the financial requirements is central to establishing whether the project is viable or not. In cases where external funding is being applied for, the budget will form an important element of the project proposal.
It is an often-discussed element of the financial world that the complexity of the financial system is poorly understood—or at the very least, we underestimate risk and don’ t know what we don’t know. Such examples as the crises in 1987, 2001, and 2007 are enough evidence of this fact. And some excellent discussion around this phenomenon has been presented by Nicolas Taleb.2