You are advising a group of investors who are considering the purchase of a shopping center complex. They would like to finance 75 percent of the purchase price. A loan has been offered to them on the following terms: The contract interest rate is 4 percent and will be amortized with monthly payments over 20 years. The loan also will have an equity participation of 40 percent of the cash flow after debt service.

The property is expected to cost $6.38 million. NOI is estimated to be $460,000 during the first year, and to increase at the rate of 2 percent per year for the next five years. The property is expected to be worth $7.25 million at the end of five years. The improvement represents 80 percent of cost, and depreciation will be over 39 years with no mid-month convention for year 1 to keep it simple. Assume a 35 percent tax bracket for ordinary income, a 25 percent for depreciation recapture, and 20 percent for capital gains taxes and a holding period of five years.

Calculate the ATIRR, taking into account the equity participation.