QUESTION: What are the BTIRR & ATIRR for the investment using Loan 1 (on a leveraged Basis.)

Dave is considering an acquisition of an aging office building with the details outlined below.

1) Purchase Price - $7,300,000

2) First Year NOI $572,500

3) NOI Growth: 4% from the first year, 2.5% the next year and 1% growth thereafter.

4) Reversion - Dave expects to sell the property at the end of his fifth year of ownership. At that time he expects that buyers will be want a BTIRR of 10.25% and that those buyers will anticipate the NOI will increase by 1.5% per annum from the fifth year of his investment period forward.

5) Dave has $30,000 in Passive Activity Gains available for him to use in conjunction with Passive Activity Losses generated by this property. All PAL's should be utilitized at the earlist possible time.

6) David's Ordinary tax rate is 33%, his Capital Gains Tax rate is 20% and his Recapture Tax Rate is 25%.

7) 90% of the Purchase Price can be allocated to the building, and that must be depreciated over a 27.5 year period.

8) Selling Costs are expected to be 2% of the sales price.

9) David has two loans available to him:

Loan 1) The loan amount is limited to the lesser amount as determined by either a 1.25x Debt Service Coverage Ratio (in the First Year ) or 80% Loan-to-Price, 6.75% interest rate, 25 year amortization, no prepayment prohibition. (i.e. no penalty for prepayment at any time.) This is a non-recourse loan.