Property:                               Office One, Anytown, U.S.A.

Acquisition date:                 December 31, 1999

Purchase Price:                     2000 NOI @ 10% CAP RATE

Deal Terms:                          65% financed with debt, 9% interest-only, 10-year term

35% equity ownership

Base Year 1999:                  Rental Income                                     $1,600,000

Escalation Income                              $              0

Less:       Janitorial & Cleaning          $   330,000

Labor                                     $   215,250

Utilities                                   $     60,000

Management Fee                $     80,000

Real Estate Taxes                               $     80,000

Assumptions:                       Vacancy Rate      :               9%

                                                                Growth Rates:                      Rental    Income                 5% Annually

                                                                                                                Janitorial & Cleaning          3% Annually

Utilities                                   3% Annually

                                                                                                                Management Fee                3% Annually

In 2001, Labor and Real Estate Taxes escalate by 13.07 and 10%, respectively, and remain at those levels for the remainder of the holding period. Tenant pays the increase over the stated Base Year.

Sell on December 31, 2004

Selling Expenses- 5% of sale price (2005 NOI @ 10% Cap Rate)

Depreciable Basis = 80% of cost (calculate depreciation using straight-line method)

Owner’s Ordinary Tax Rate: 39.6%

Use Post-1997 capital gains & recapture tax rates (20% & 25% respectively)

REQUIRED:

9A) Pro-forma Analysis for both Pre-Tax and After- Tax scenarios

9B) Calculations for:

Adjusted Basis

Capital Gains and Recapture Taxes

Net Sales Proceeds

Break Even Occupancy (2000 & 2004)

Cash-on-Cash Returns (annually)

Gross Rent Multiplier ((2000 & 2004)

Debt Service Coverage (2000 & 2004)

Before and After Tax IRR

Before and After Tax NPV @12%

Answer rating: 100% (QA)

ANSWER Answer Explanation a Net operating income for the year 2000 749450 ... View the full answer