Tower Office Assumptions
Purchase Price	$17,000,000
Gross Floor Area	170,000 sf
Office Rent	$30/sf
Rent Growth Rate	3%
Expense Growth	3%
Stabilized Vacancy	5%
Expenses	$17.5/sf
Terminal Cap Rate	11.5%
Discount Rate	12.5%

A fully amortizing 70 percent loan can be obtained at 7 percent interest for 30 years (total annual payments will be monthly payments times 12). The building represents 80 percent of value and is depreciable over 39 years (use 1/39 per year). Capital gains from price appreciation will be taxed at 20 percent and depreciation recapture will be taxed at 25 percent. The potential investor indicates that she is in the 36 percent bracket and has enough passive income from other activities so that any passive losses from this activity would not be subject to any passive activity loss limitation.

Develop a 10-year pro forma.

(a) Use the pro forma to determine the before-tax IRR (BTIRR) and after-tax IRR (ATIRR).

(b) What is the NPV for this property using a 12.5 percent (after-tax) discount rate.