Question #7 - Reading 33 Real Estate Investments

Reading: Reading 33 Real Estate Investments

PDF File: Reading 33 Real Estate Investments.pdf

Page: 6

Status: Incorrect

Correct Answer: B

Your Answer: B

Shared Context

- Based on projected real estate conditions and the partners' discussion given in the vignette, 3CC's top recommendation would most likely be: A) public debt. B) private equity. C) public equity.

Question

If the pension fund chooses to invest in hotels over apartments, one possible reason for this is that hotels:

Answer Choices:

A. may offer higher rates of returns because of higher operational risk

B. are commercial properties while apartments are residential properties

C. are not affected by cost and availability of debt capital

Explanation

All real estate values are affected by cost and availability of capital. Apartments and other multi-family units are considered commercial real estate. Hotels require more active management making them more risky ventures as more operational expertise is needed. This additional risk requires a higher rate of return.

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