The opportunity cost of capital discount by Prof. David Geltner

Question 9 / 22: The opportunity cost of capital (discount rate) applicable on an unlevered basis to assets that are not yet leased up ("speculative built properties") is best described as:

A Usually about 50 to 200 basis-points above the OCC for the same property with stabilized occupancy,
based in part on analysis of the "interlease" discount rate implied in the property
market.

B Usually about 300 to 500 basis-points above the OCC for the same property with stabilized occupancy,
based in part on analysis of the "interlease" discount rate implied in the property
market.

C Usually about 50 to 200 basis-points below the OCC for the same property with stabilized occupancy,
based on the typical upward slope of the yield curve in the bond market, because lease-up is
near term.

D Usually about 300 to 500 basis-points below the OCC for the same property with stabilized occupancy,
based on the typical upward slope of the yield curve in the bond market, because lease-up is
near term.

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Real Estate Finance & Investment Final Exam 2006

Author:

Prof.David GeltnerProfessor

MIT Massachusetts Institute of Technology

USA

Access: Public Peer Review

Attribution: Geltner, David, and Tod McGrath. 11.431J Real Estate Finance and Investment, Fall 2006. (MIT OpenCourseWare: Massachusetts Institute of Technology), http://ocw.mit.edu/courses/urban-studies-and-planning/11-431j-real-estate-finance-and-investment-fall-2006 (Accessed 1 May, 2014). License: Creative Commons BY-NC-SA

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