Venture capital limited has formed a private real estate syndication to acquire and operate the tower office building. The venture will act as the general partner and will have 35 individual limited partners. The venture to be undertaken and relevant cost and financial data are summarized as follows: 
Cost breakdown Land $ 1,000,000 Improvements 9,000,000 (capitalized) Points 100,000 (amortized over loan term) Subtotal $10,100,000 Organization fee 100,000 (amortized over 5 years) Syndication expenses 100,000 (capitalized) Total funding required $10,300,000 Financing Loan amount $ 8,000,000 Interest rate 11% Term 25 years (monthly payments) Points $ 100,000 Partnership facts and equity requirements Organization: December, year 1 Number of partners: 1 general partner and 35 limited partners Equity capital contribution: General partner, 10%; limited partners, 90% Cash assessments: None Cash distributions from operations: General partner, 10%; limited partners, 90% Taxable income and losses from operations: General partner, 10%; limited partners, 90% Allocation of gain or loss from sale: General partner, 15%; limited partners, 85% Cash distribution at sale: Based on capital account balances Operating and tax projections Potential gross income (year 2) $1,750,000 Vacancy and collection loss 10% of potential gross income Operating expenses (year 2) 35% of effective gross income Depreciation method Straight-line, 31.5 years Projected growth in income 3% per year $13,500,000 Projected resale price after 5 years Limited partners' tax rate 28% General partner's tax rate 28% Selling expenses 5% a. Determine an estimated return (ATIRR) for a limited partner. (Hint: Consider all 35 limited partners as a single investor.) b. Determine an estimated return (ATIRR) for the general partner. c. Why do the returns differ for the general and limited partners? Cost breakdown Land $ 1,000,000 Improvements 9,000,000 (capitalized) Points 100,000 (amortized over loan term) Subtotal $10,100,000 Organization fee 100,000 (amortized over 5 years) Syndication expenses 100,000 (capitalized) Total funding required $10,300,000 Financing Loan amount $ 8,000,000 Interest rate 11% Term 25 years (monthly payments) Points $ 100,000 Partnership facts and equity requirements Organization: December, year 1 Number of partners: 1 general partner and 35 limited partners Equity capital contribution: General partner, 10%; limited partners, 90% Cash assessments: None Cash distributions from operations: General partner, 10%; limited partners, 90% Taxable income and losses from operations: General partner, 10%; limited partners, 90% Allocation of gain or loss from sale: General partner, 15%; limited partners, 85% Cash distribution at sale: Based on capital account balances Operating and tax projections Potential gross income (year 2) $1,750,000 Vacancy and collection loss 10% of potential gross income Operating expenses (year 2) 35% of effective gross income Depreciation method Straight-line, 31.5 years Projected growth in income 3% per year $13,500,000 Projected resale price after 5 years Limited partners' tax rate 28% General partner's tax rate 28% Selling expenses 5% a. Determine an estimated return (ATIRR) for a limited partner. (Hint: Consider all 35 limited partners as a single investor.) b. Determine an estimated return (ATIRR) for the general partner. c. Why do the returns differ for the general and limited partners
