Rambo presently owns the Marine Tower office building, which is 20 years old, and is considering renovating it. He purchased the property 2 years ago for $1,000,000 and financed it with a 20-year, 75% loan at 10% interest (monthly payments). Of the $1,000,000, the appraiser indicated that the land was worth $200,000 and the building $800,000. Rambo has been using straight line depreciation over 39 years and for simplicity purposes, does not include any mid-month conventions for year 1 (1/39 per year for simplicity). At the present time Marine Tower is producing $100,000 in NOI (Year3), and the NOI and property value are expected to increase 2% per year. The current market value of the property is $1,050,000. Rambo estimates that if the Marine Tower office building is renovated at a cost of $200,000, NOI will be about 20% higher next year ($120,000 vs $100,000) due to higher rents and lower expenses. He also expects that with renovation the NOI will increase 3% per year instead of 2%. Furthermore, Rambo believes that after 5 years, a new investor will purchase the Marine Tower office building at a price based on capitalizing the projected NOI 6 years from now (2 years have passed and an additional 6 years, giving a total of 8 years) at 10% terminal capitalization rate. Selling costs would be 4% of the sale price. Rambo is currently having to pay a 28% tax on ordinary income, 28% on price appreciation, and 28% on depreciation recapture, which he expects to remain the same in the future. He also would not be subject to any passive activity loss limitations. If Rambo does the renovation, he believes that he could obtain a new loan at 11% interest rate and a 20-year loan term (monthly payments). Below is the summary of the information about the property, and his estimation if he does the renovation. CURRENT $1,000,000 Purchase Price Building Value Land Value Loan-to-value Ratio $800,000 $200,000 75% IF RENOVATED Renovation Cost $200,000 Initial Increase in NOI (Year 3) 20% Annual Increase in NOI 3% Terminal Cap Rate 10% of sale Selling Expenses 4% price 10% 20 years 12 2 $100,000 2% per year $1,050,000 2% per year 39 years 28% 28% New Loan Information: Interest Rate Term Payments per Year Interest Term Payments per Year Years Since Purchased Current NOI (Year 3) Projected Increase in NOI Resale Value Today Appreciation Rate Depreciable Life Ordinary Income Tax Rate Price Appreciation Tax Rate Depreciation Recapture Tax Rate 11% 20 years 12 28% Below is what the cash flows from the base case scenario, which is without renovation looks like. Some cells have been intentionally left empty. Please compute them. What is the ATCF from reversion for the base case scenario? (round your final answer to whole numbers) Cash Flows Without Renovation $250,000 $750,000 $86,852 Equity Loan Amount Annual Loan Payment Loan Information Year Interest EOY Loan Balance 3 2 $73, 142 $723,879 $71,706 $708,734 4 5 6 $70,120 $68,368 $66,433 $692,002 $673,518 $653,099 7 8 $64,295 $61,933 $630,542 $605,622 Year NOI Debt Service BTCF 3 $100,000 $86,852 $13,148 4 5 6 7 $102,000 $104,040 $106,121 $108,243 $86,852 $86,852 $86,852 $86,852 $15,148 $17,188 $19,269 $21,391 Taxable income NOI Less Interest Less Depreciation Taxable Income Tax $100,000 $71,706 $20,513 $7,781 $2,179 $102,000 $104,040 $106,121 $70,120 $68,368 $66,433 $20,513 $20,513 $20,513 $11,367 $15,159 $19,175 $3,183 $4,244 $5,369 $108,243 $64,295 $20,513 $23,436 $6,562 ATCF BTCF Tax ATCF $13,148 $2,179 $10,969 $15,148 $3,183 $11,965 $17,188 $4,244 $12,944 $19,269 $5,369 $13,900 $21,391 $6,562 $14,829 Cash Flows from Sale in Year 7 Sales Price Sales Cost Mortgage Balance BTCF (Reversion) $1,159,285 ? ? ? Sales Price Sales Costs Original Cost basis Price Appreciation Accumulated Depreciation $1,159,285 ? $1,000,000 ? ? ? ? Total Capital Gain Tax from Price Appreciation Tax from Accumulated Depreciation Total Tax ATCF (Reversion) ? . . . ? Rambo presently owns the Marine Tower office building, which is 20 years old, and is considering renovating it. He purchased the property 2 years ago for $1,000,000 and financed it with a 20-year, 75% loan at 10% interest (monthly payments). Of the $1,000,000, the appraiser indicated that the land was worth $200,000 and the building $800,000. Rambo has been using straight line depreciation over 39 years and for simplicity purposes, does not include any mid-month conventions for year 1 (1/39 per year for simplicity). At the present time Marine Tower is producing $100,000 in NOI (Year3), and the NOI and property value are expected to increase 2% per year. The current market value of the property is $1,050,000. Rambo estimates that if the Marine Tower office building is renovated at a cost of $200,000, NOI will be about 20% higher next year ($120,000 vs $100,000) due to higher rents and lower expenses. He also expects that with renovation the NOI will increase 3% per year instead of 2%. Furthermore, Rambo believes that after 5 years, a new investor will purchase the Marine Tower office building at a price based on capitalizing the projected NOI 6 years from now (2 years have passed and an additional 6 years, giving a total of 8 years) at 10% terminal capitalization rate. Selling costs would be 4% of the sale price. Rambo is currently having to pay a 28% tax on ordinary income, 28% on price appreciation, and 28% on depreciation recapture, which he expects to remain the same in the future. He also would not be subject to any passive activity loss limitations. If Rambo does the renovation, he believes that he could obtain a new loan at 11% interest rate and a 20-year loan term (monthly payments). Below is the summary of the information about the property, and his estimation if he does the renovation. CURRENT $1,000,000 Purchase Price Building Value Land Value Loan-to-value Ratio $800,000 $200,000 75% IF RENOVATED Renovation Cost $200,000 Initial Increase in NOI (Year 3) 20% Annual Increase in NOI 3% Terminal Cap Rate 10% of sale Selling Expenses 4% price 10% 20 years 12 2 $100,000 2% per year $1,050,000 2% per year 39 years 28% 28% New Loan Information: Interest Rate Term Payments per Year Interest Term Payments per Year Years Since Purchased Current NOI (Year 3) Projected Increase in NOI Resale Value Today Appreciation Rate Depreciable Life Ordinary Income Tax Rate Price Appreciation Tax Rate Depreciation Recapture Tax Rate 11% 20 years 12 28% Below is what the cash flows from the base case scenario, which is without renovation looks like. Some cells have been intentionally left empty. Please compute them. What is the ATCF from reversion for the base case scenario? (round your final answer to whole numbers) Cash Flows Without Renovation $250,000 $750,000 $86,852 Equity Loan Amount Annual Loan Payment Loan Information Year Interest EOY Loan Balance 3 2 $73, 142 $723,879 $71,706 $708,734 4 5 6 $70,120 $68,368 $66,433 $692,002 $673,518 $653,099 7 8 $64,295 $61,933 $630,542 $605,622 Year NOI Debt Service BTCF 3 $100,000 $86,852 $13,148 4 5 6 7 $102,000 $104,040 $106,121 $108,243 $86,852 $86,852 $86,852 $86,852 $15,148 $17,188 $19,269 $21,391 Taxable income NOI Less Interest Less Depreciation Taxable Income Tax $100,000 $71,706 $20,513 $7,781 $2,179 $102,000 $104,040 $106,121 $70,120 $68,368 $66,433 $20,513 $20,513 $20,513 $11,367 $15,159 $19,175 $3,183 $4,244 $5,369 $108,243 $64,295 $20,513 $23,436 $6,562 ATCF BTCF Tax ATCF $13,148 $2,179 $10,969 $15,148 $3,183 $11,965 $17,188 $4,244 $12,944 $19,269 $5,369 $13,900 $21,391 $6,562 $14,829 Cash Flows from Sale in Year 7 Sales Price Sales Cost Mortgage Balance BTCF (Reversion) $1,159,285 ? ? ? Sales Price Sales Costs Original Cost basis Price Appreciation Accumulated Depreciation $1,159,285 ? $1,000,000 ? ? ? ? Total Capital Gain Tax from Price Appreciation Tax from Accumulated Depreciation Total Tax ATCF (Reversion)