- CFA Exams
- CFA Level I Exam
- Study Session 15. Alternative Investments
- Reading 39. Private Real Estate Investments
- Subject 2. Characteristics and classifications
CFA Practice Question
Which property type may have the highest leverage?
A. Apartments.
B. Office buildings.
C. Hotels / Motels.
Explanation: Up to 90% loan-to-value ratios are possible for apartments.
User Contributed Comments 3
| User | Comment |
|---|---|
| mkunkel28 | This doesn't make sense to me. Apartment tenants have shorter-term leases than do office tenants. From an underwriting perspective, banks would typically provide more financing to office buildings since the tenants have longer term leases (usually 5-20 years), and typically are more credit worthy of additional proceeds than apartment renters. Can someone explain this to me? |
| myron | The question asks from the apartment owners' perspective, not tenants' as they don't own apartments. In general, the office sector has greater volatility and lenders require more down payment for office owners. |
| b25331 | Take this approach: Which type of property generally has the lowest risk? The lowest risk may, in this case, have the highest leverage |