Free CFA Level III: Private Markets Private Real Estate Practice Questions
Private real estate on CFA Level III covers property valuation methods (income, cost, sales comparison), REIT analysis, real estate fund structures (open-end, closed-end), and risk-return characteristics of direct and indirect property investments.
Sample Questions
Question 1
Easy
Net Operating Income (NOI) for a property is calculated as:
Solution
C is correct.
NOI = Gross rental income + Other income - Vacancy/credit losses - Operating expenses (property taxes, insurance, repairs, maintenance, management fees, utilities). NOI excludes debt service (mortgage payments), capital expenditures, and income taxes because it represents the property's operating performance independent of its financing structure and owner's tax situation.
NOI = Gross rental income + Other income - Vacancy/credit losses - Operating expenses (property taxes, insurance, repairs, maintenance, management fees, utilities). NOI excludes debt service (mortgage payments), capital expenditures, and income taxes because it represents the property's operating performance independent of its financing structure and owner's tax situation.
Question 2
Medium
Based on Exhibit 1, Parkside Tower's projected Year 5 NOI is closest to:
Solution
A is correct. Year 5 NOI compounds Year 1 NOI at the 4.0% annual growth rate for four years (Year 1 → Year 5):
Question 3
Hard
Moreno is drafting the investment committee memo for Parkline Tower. Based on the case facts and all three exhibits, which of the following statements regarding the deal is most accurate?
Solution
B is correct. Direct capitalization at Moreno's 6.00% selected cap rate yields , which is $4 million above the $96 million asking price. The property's characteristics — Class A quality, primary-market (Denver) location, stabilized operations at market vacancy, no value-creation plan, and a 10-year unlevered hold at a relatively low 7.5% discount rate — are the defining features of a core private real estate strategy.