Office Problem (Use the attached spreadsheets as a guide)

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:RentalIncome 5% Annually

Janitorial & Cleaning3% Annually

Utilities 3% Annually

Management Fee3% 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%