You are considering purchasing an upscale, urban office/warehouse flex building for the price of $12,550,000. Seventy percent (70%) will be financed with a 20-year loan at 6% interest with fixed monthly payments. The remaining 30% will be financed with cash (equity). Eighty percent (80%) of the purchase price is attributed to the improvements and is depreciable. A total of 100,000 square feet can be leased at $16 per square foot per year. Vacancy and credit losses are expected to be 14%. Operating expenses are expected to run 25% of the effective gross income. Rent is expected to grow 2.5% per year.

Assume you will sell the property in 5 years. At the end of year 5, the property is projected to be valued at the year 6 NOI capitalized at 7.5% (direct capitalization). Selling expenses are estimated to be 8% of the selling price. You are in the 30% income tax bracket (congratulations!!) and expect to pay a 15% tax on the capital gain and a 25% tax on the recovery of depreciation.

Partial Amortization Schedule: (rounded to nearest dollar)

Year Balance Due Interest Principal

1 ........... $520,720 $234,542

2 ........... .......... 249,008

3 ........... 490,896 264,366

4 ........... .......... 280,672

5 $7,458,430 $457,279 ..........

For the following, show all your work explicitly and by hand [check answer: ATCF3= $228,209]:

A. Calculate the first years estimated ATCF.

B. What is the sixth years estimated NOI?

C. Calculate the estimated taxes on sale, as if you were selling after 5 years?

D. Calculate the estimated ATER, as if you were selling after 5 years?

E. What is the break-even vacancy rate (year 1)?

F. What is the debt coverage ratio?

G. If the discount rate is 12%, what is the NPV?