Real Estate Financing - Project III Problem Set #1 - REE 6935 – Fall 2020 – Dr. Beracha To complete this problem set you will need to answer the 8 questions listed below. All questions must to be...

This is a mortgage /corporate finance question on investment.The writer must be well vexed in 'Regression" in mortgage loans. Please only experts should handle this. Also, the instruction should be read carefully.


Real Estate Financing - Project III Problem Set #1 - REE 6935 – Fall 2020 – Dr. Beracha To complete this problem set you will need to answer the 8 questions listed below. All questions must to be answered in Excel using the associated tabs included in the “Problem set 1 – REE6935 – Fall 2020-Excel” file that is provided to you. 1. (15%) You have recently invested in an office building located in NYC at a cost of $50 million. You paid for 40% of the building in cash and financed 60% with an interest only loan. For a variety of reasons you decided to denominate the loan in British pounds. At the time of the loan origination $1 could buy 0.81 British pounds. If you have a clause within your loan stating that your loan-to-value must never exceed 70%, what conversion rate will trigger a default? For simplicity, assume that the value of your property does not change, and the loan is an interest only loan. 2. (9%) Consider the Big Mac index and its price differential among countries. a. Which factors contribute the most to the price differentials and which factors are pushing toward price equilibrium? b. Compare real estate to a Big Mac with respect to the factors you mentioned in part a. Would you expect a larger or smaller price differential in the price of real estate among countries compared with the Big Mac price differential? Why? 3. (20%) You have gained access to a dataset that includes commercial real estate transactions that took place during the 2017-2019 time period in Miami, FL and in San Francisco, CA. After general data “clean up” you ran the following regression: ????? = ? + ?1???? + ?2???? + ?3????? + ?4???????? Where: · Price is the price in dollars paid for each property transacted. · SQFT is the size of each property transacted in squared feet. · Year takes a value of 0, 1 or 2 if the transaction took place during the year 2017, 2018 or 2019, respectively. · Class takes a value of 0, 1 or 2 if the transacted property is of class A, B or C, respectively. · DumMiami is a dummy variable that takes a value of 1 if the property transacted is locate in Miami and 0 otherwise. For each of the coefficients ((?1, ?2, ?3 and ?4) predict whether you expect it to be positive, negative or ambiguous and explain in one sentence. 4. (20%) Referring to problem 3, assuming that you could get any information you want about each property: a. List 3 additional variables that you expect to have a high contribution to the improvement of the accuracy of your regression estimation and clearly explain how each variable would be defined (like I did in in question 3) b. Briefly explain the sign you would expect (negative or positive) from the coefficient of each of these three additional variables. 5-8. (9% X 4) You analyzed data on residential real estate transactions in Miami during the 2005 through 2012 time period using the following regression: ??_????? = ? + ?1??_???? + ?2???ℎ + ?3????????? + ?4???? Where: · LN_Price is the natural log of the price in dollars paid for each property transacted. · LN_SQFT is the natural log of the size of each property transacted in squared feet. · Bath is the number of bathrooms of each property transacted. · Condition is a scale from 1 (poor) through 5 (excellent) that represents the overall physical condition of the property transacted. · Time is the number of years relative to the beginning of the sample period (2005) when each property was transacted. For example, a property that transacted in 2007 will be associated with a Time value of 2 (2007-2005). Your analysis yielded the following results: Variable Coefficient t-Stat LN_SQFT 0.88 23.67 Bath 0.054 11.32 Condition 0.073 18.26 Time -0.018 -1.34 Answer the 4 multiple-choice questions on tab P5-8