Real Estate Finance - Questions

REAL ESTATE FINANCE.
Student Name

Question 4.
Mortgage Lending refers to the lending of money to someone who intends to buy a house or any
other real estate property and use that property as a collateral for the loan.
The benefit associated with the direct lending option in this regard is that the mortgage has been
spilt into two. This lowers the general risk of investing in this mortgage. Additionally, it is
advantageous because it has been likened with fixed income securities. On the other hand,
however, this option may be costly. This is because its high returns simply imply high risk. Any
investment that has potential of high returns obviously involves high levels of risk (Lin and
Zhang, 2013). This makes investment returns for this option uncertain.
Investing in one of the CMBS security class may be costly. This is because the loan maturity
period is low and the mortgage rate is high. When these two factors are compared, the returns
that the company might derive from the deal will be low. The benefit that these options have is
the long loan amortization period that would give the company enough time to clear off the loan.
Investing in one of the CMO tranches proves to be costly. This is because the company may have
to incur high interests for other trenches while servicing the principal amount of the first trench.
This will highly affect the total returns that the company would make from this investment. The
only benefit related to the CMO trenches is the long loan maturity period. This would give the
company enough time to pay off the loan.
Question 5.
i) North Mall.
 The property is located in a rural area and was built in 1982.