Free practice questions · Course 4
Financing Commercial Properties Practice Questions
Commercial mortgages, lender requirements, and debt service coverage ratios. Below are 5 free sample questions from our 30-question Financing Commercial Properties bank. Each comes with the correct answer and a full explanation.
Question 1 of 5
Which statement BEST describes mezzanine financing in a commercial real estate capital stack?
- AIt is registered ahead of the first mortgage
- BIt is unsecured trade credit between landlord and tenant
- CIt is subordinate debt, often secured by a pledge of partnership or share interests rather than a real-property charge, and priced higher than senior debt
- DIt is the same instrument as a vendor takeback
Why C is correct
Mezzanine financing increases overall leverage when senior LTV is constrained, but the higher cost and equity-pledge structure can complicate enforcement and intercreditor dynamics.
Question 2 of 5
A retail centre is appraised at $14,000,000. The lender will lend up to the lesser of 70 percent LTV, 1.25x DSCR, or 9 percent debt yield. NOI is $980,000 and the mortgage constant is 0.07. What is the maximum loan?
- A$8,400,000 (LTV-constrained)
- B$9,800,000 (LTV-constrained)
- C$11,200,000 (debt-yield-constrained)
- D$10,888,889 (DSCR-constrained)
Why B is correct
The smallest of the three sizing tests sets the loan amount. Comparing LTV, DSCR-derived debt service, and debt yield is the standard sizing exercise.
Question 3 of 5
Stonebridge Equities purchases a plaza for $5,000,000 with the seller, Riverview Holdings, providing a $1,000,000 vendor takeback (VTB) registered as a second mortgage. What is the most accurate characterization?
- AThe VTB ranks ahead of any new institutional first mortgage
- BThe VTB is a seller-financed mortgage that closes the gap between buyer equity and senior debt and is subordinated to the first mortgage by registration order or a postponement
- CThe VTB must be insured by CMHC to be enforceable
- DA VTB extinguishes the seller's interest in the property entirely
Why B is correct
VTBs are flexible tools but require careful priority structuring with the senior lender, including standstill, intercreditor, and prepayment provisions.
Question 4 of 5
Maple Ridge Logistics is comparing financing options for a new distribution warehouse. Which feature MOST distinguishes commercial mortgages from residential mortgages in Ontario?
- ACommercial mortgages are always insured by CMHC, while residential mortgages are not
- BCommercial mortgages typically have shorter amortization, are underwritten primarily on property cash flow, and are more commonly closed with prepayment penalties
- CCommercial mortgages must always be registered as first charges only
- DCommercial mortgages are governed by the Mortgage Brokerages, Lenders and Administrators Act, while residential mortgages are not
Why B is correct
Commercial underwriting focuses on the property as an income-producing asset, while residential focuses on the borrower's personal income. Term, amortization, and prepayment structure also differ materially.
Question 5 of 5
Which CMHC commercial program is most commonly used to finance the construction or refinance of a five-or-more-unit purpose-built rental apartment in Canada?
- ACMHC MLI Select
- BCMHC Reverse Mortgage program
- CCMHC FlexHELOC
- DCMHC IRD Calculator
Why A is correct
MLI Select provides higher LTV, lower DSCR thresholds, and longer amortizations (up to 50 years on the highest tiers) compared to conventional financing on qualifying multi-unit residential properties.
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