Cartwright Final - Sean Linkletter

Angus Cartwright Case
Investment Analysis
Spring 2014
Sean Linkletter
Executive Summary and

Recommendations
ANGUS CARTWRIGHT CASE

William Harrison; Faculty
Executive Summary of Investment Analysis &
Recommendations
for
John DeRight
April 20, 2014
Investment Suitability:
Key facts known (or reasonably inferred) about the clients financial status which give
guidance as to relative investment suitability among the properties:
1. John is retired and living off of dividends and other small investments of approximately $1
million annually.
2. He is specifically interested in taking advantage of the newly enacted capital gains rate.
3. He believes that real estate would give him the benefits of diversification and protection from
inflation.
4. Having recently sold his company for $18 million, he is looking to invest that capital in real
estate to diversify his portfolio.
5. He would like to have a minimum leveraged return on her investments of 12% after tax.
Conclusions as to relative risk tolerance in reaching for incremental return:
John is less flexible with the investment he will make because he has a low tolerance for risk
He is looking for an investment that will provide him with tax advantages such as the new capital
gains tax law
Five (5) key risk / return measures chosen to support this recommendation:
Return Measures (ranking by priority)
1.EDR
2. Breakdown ATIRR
3.Breakeven Occupancy
Quantification
12.18%
15.39%
67.00%
Risk Measures (ranking by priority)

1. Tax Effect on ATIRR
2. Standard Deviation
(18.45%)
3.22%
Other Critical Variables (if applicable) :
DCR
2.02
Defense of Variables:
Alison Green is best suited for the investment needs of John DeRight due to his
high levels of risk aversion. The EDR is the highest of all the available properties at
12.18%. Getting more of the initial equity back sooner mitigates some of the risk of the
investment. John has less income coming from other sources so he is in need of as much
income as possible and receiving more in the early years helps him with this.
Because John is retired and is in need of instant income he needs a property that is
less reliant on reversion for its return and receives a higher portion of its return during the
holding period. By partitioning the IRR for Alison Green we find that 74.16% of the IRR
derives from the operating cash flows, meaning that he will receive more money earlier
in the holding period rather than relying on the price appreciation at the sale.
Alison Green, having the lowest breakeven occupancy at 67.00% provides for a
lower risk investment because it allows the occupancy rate to be lower while still
receiving a desirable return. If the market turned out to be in a recession this investment
would still be favorable because even if the vacancy rate is higher he will still receive a
higher revenue than the other properties.
John DeRight explicitly stated that he wants to diversify his portfolio by adding
real estate given its relative tax advantages to other asset classes. Because of this, we
consider the propertys tax benefits on its internal rate of return of significant importance.
Alison Green ranks third among the properties, providing a benefit to the IRR from taxes
of 18.45%. If tax laws were to change, 18.45% of the IRR would be affected.
In terms of standard deviation, at 3.22% Alison Green is the least risky among all
of the potential investments. This indicates that in the event of a weaker economy, the
investments value will deviate relatively less from our expected return than the other
properties. The greater stability in cash flows is preferential to John who is now retired,
primarily living off dividend income, and thus more risk-averse.
Also we should consider the DCR for Alison Green, it is the highest among the
properties at 2.02. This shows that the NOI is more than double the debt service meaning
that the return to John would be higher because he has to pay less of his cash flow out to
his lender.
Investment Recommendation for John DeRight:
Alison Green
Other findings or comments: The coefficient of variation is also the lowest of the
properties giving Alison Green the best risk-return trade off making it a favorable
investment for a risk adverse investor such as John.

William Harrison; Faculty
Executive Summary of Investment Analysis &
Recommendations
for
Judy DeWright
April 20, 2014
Investment Suitability:
Key facts known (or reasonably inferred) about the clients financial status which give
guidance as to relative investment suitability among the properties:
1. Judys company has earned $1.1 million after taxes in each of the previous 10 years and there is
no evidence to indicate that future earnings will drop.
2. She has $16 million currently invested in short-term securities, but does not consider that
necessary for her current operations.
3. She believes that real estate would give her the benefits of diversification, protection from
inflation, and certain tax advantages.
4. She has turned down past offers to sell her business, but has chosen to continue to run the
business herself.
5. She would like to have a minimum leveraged return on her investments of 12% after tax.
Conclusions as to relative risk tolerance in reaching for incremental return:
Judy is less risk averse and has the ability to bear more risk in her investment than John because
she is still the owner of a successful business and she has received multiple offers to buy her
business.
She is interested in reinvesting the $16 million she has in short-term securities into a long-term
investment because she is not in need of short term cash flows.
Five (5) key risk / return measures chosen to support this recommendation:
Return Measures (ranking by priority)
1.ATIRR
2.Growth of NOI
3.Cap Rate at Sale
Quantification
16.03%
4.25%
8.75
Risk Measures (ranking by priority)

1. Standard Deviation
2. Cash on Cash Return
Other Critical Variables
(if applicable) :
Scenario Analysis
4.02%
4.06%
Defense of Variables:
The ATIRR for the Fowler Building is 16.03% making it the second highest for
all of the properties and a good fit for Judy given the risk- return relationship. Judy has
the ability to bear more risk, therefore this property suits her well because the incremental
increase in IRR for the incremental increase in risk is the best being quantified by the
coefficient of variation of 0.25.
Judy has no need for short term income implying that she is looking for a long
term investment. Fowler fits very well to this need due to its high annual increase in NOI.
Because she is looking for a return with a long term horizon, a higher increase in NOI
will allow her future cash flows to be higher, especially in the later years of the holding
period.
Fowler's low cap rate at time of sale is key when choosing it as a long term
investment. Having a lower cap rate shows that more of the return she is expecting will
be attributed to the reversion at sale which we can see from 64.52% of the ATIRR
coming from the ATCFS. Relying on price appreciation for the bulk of return is typical in
a long term investment making this fit Judy's need well.
Fowler's standard deviation of 4.02% is perfect for Judy because she is more
willing to take on more risk with the promise of a higher return. This ranks third among
the available properties while still offering the second highest return. Given the level of
risk, a downside of one standard deviation in return would still be 12.01% which is
roughly the same as her required return on investment of 12%. This measure makes
Fowler a riskier investment but it also promises of a higher return even in a pessimistic
scenario.
Fowler's low cash on cash return for year 1 shows that most of its return is due to
the increase in NOI and the anticipated price appreciation. Judy would be satisfied with
this low EDR for the first couple of years with the promise of an increase in the later
years of the holding period, because she is looking for a long term investment. This being
said, postponing the majority if the return makes this a riskier investment, but one that
Judy would be able to make due to her higher risk tolerance.
Investment Recommendation for Judy DeWright:
Fowler Building
Other findings or comments: When evaluating the scenarios for Fowler we see
that it ranks the best for vacancy, increase in NOI, and terminal cap rate in the pessimistic
scenarios. The pessimistic vacancy of 7.5% is the lowest showing it will provide more
revenue on a percentage basis than other properties. The expected NOI increase of 2%
allows for the highest NOI increase should the market not behave as was expected. And
the terminal cap rate is the lowest at 9.0 giving it the highest likelihood of price
appreciation.
Due to Judy's tolerance for risk the Fowler Building is the most suitable
investment for her because overall it is a risky investment. It starts out with a very low
return during initial years of the holding period. But the promise of a high increase in
NOI and price appreciation shows that the return would be more reliant on the future
flows fitting well with Judy's need for a long term growth investment.
(This page is left intentionally blank)
ATIRR Analyses
EXHIBITS
Group #5
Ryan
Number of Units or Rentable Sq Ft

Gross Purchase Price
Depreciable base
Depreciable Life
Estimated Sales Price
Expected Year of sale
Cash flow from operations (YR 1)
Annual % Increases in CFO (NOI)
Leasehold Payments (on Land)
Equity Investment
Amount of 1st Mortgage
Interest Rate
Term (Balloon Term)
Amoritization Term
Loan Balance EOY 10
Constant loan Payments (aka Loan Constants*)
Gross Rents (GPI)

- Vacancy
Effective Gross Income (EGI)
- Real Estate Taxes
- Other OPEX
- Cap reserve (CAPX)
Cash Flow From Operations (NOI)
- Finance Payments (ADS)
- Ground Lease Payments
Before Tax Cash Flow (BTCF)
Matt
Exhibit 1 Basic Information

Alison Green
Stony Walk
100
67000
9600000
11500000
7500000
8000000
28
39
12835900
14879300
10
10
870200
1057200
3.25%
3.25%
0
0
3600000
3500000
6000000
8000000
6.00%
6.50%
10
10
30
20
5021143
5252921
431676
715750
$
$
$
$
$
$
$
$
$
$
Exhibit 2 First Year Setups

Alison Green
900 Stony Walk
1440000 $
1742000
72000 $
87100
1368000 $
1654900
172800 $
209040
300000 $
368560
25000 $
20100
870200 $
1057200
431676 $
715750
$
438524 $
341450
Other OPEX / Gross Revenue

RE Tax + Other OPEX / unit or RSF
Average Monthy Rent for Apts. or
Yearly dollars / RSF for Office
Current or Projected Occupancy
96000 $
13%
$
$
$
$
$
$
$
$
$
$
Fowler
Festival
97000
19400000
13400000
39
34281600
10
2261000
4.25%
0
5432000
13968000
6.00%
10
10
0
1860881
50000
9400000
9400000
39
13665800
10
788300
4.25%
70000
2400000
7000000
7.50%
10
25
5580226
620753
$
$
$
$
$
$
$
$
$
$
Ivy Terrace
Fowler
1275000
89250
1185750
127500
254950
15000
788300
620753
70000
97547
$
$
$
$
$
$
$
$
$
$
Fowler
Festival
3580000
358000
3222000
286400
655200
19400
2261000
1860881
400119
Festival
105000 $
11%
5.50
3624.75
24.1%
1665.31 $
21.5%
2.55 $
20.3%
2.95
1350 $
93%
25.50 $
93%
36.91
90%
3000.00
21.9%
1758.00 $
22.3%
3.12
1200 $
95%
26.00
95%
Exhibit 4 Break Even Analysis

Alison Green
900 Stony Walk
95.00%
95.00%
39.19%
32.75%
67.94%
79.37%
62.50%
69.57%
2.02
1.48
2.02
1.48
Current or Projected Occupancy

Added Margin
Break-even Occupancy Rate (%)
Loan to Value Ratio (%)
Debt Coverage Ratio w/ Ground Lease
Debt Coverage Ratio w/o Ground Lease
Ivy Terrace
Ivy Terrace
1296000
90720
1205280
129600
289980
20000
765700
395703
30000
339997
Group
172
13%
Sean
80
8400000
8400000
28
10785000
10
765700
3.25%
30000
2900000
5500000
6.00%
10
30
4602715
395703
Exhibit 3 Purchase and Operating Comparables

Alison Green
900 Stony Walk
Price / Unit or Price / Rentable SF
Real Estate Taxes/ Gross Rev
Other OPEX / Unit or
Other OPEX / RSF
Raegan
188 $
11%
Ivy Terrace
93.00%
40.09%
69.30%
65.48%
1.80
1.94
5.10
200
9%
Fowler
93.00%
24.32%
85.87%
74.47%
1.14
1.27
6.75
Festival
90.00%
19.72%
87.58%
72.00%
1.22
1.22
Exhibit 6 Financial Analysis
Group #5
Ryan
Equity Required
Simple Return Measures
Cap Rate - Purchase
Cap Rate - Sale
Cash on Cash Return (year 1 aka EDR)
Discounted Return Measures
Internal rate of Return (ATIRR)
NPV @12% (of AT flows)
BTCFO
Tax Benefits or (Tax Effect) on IRR
Future (reversion) ATCFs
Return of Initial Cash (Equity)

plus Recovery of Mtg. Amoritization
plus Increase in Sales Price
less 25% tax on Deprec. Recapture
less Cap Gains tax on Appreciation
ATCFS
(total of above)
(enter ATCFs on template)
BTIRR
( leveraged per template )
BTIRRp ( un-leveraged but incl. ground lease)
ATIRRp ( un-leveraged but incl. ground lease)
Breakeven Interest Rate
(careful)
Effective Tax Rate
(leveraged)
9.19%
9.78%
9.76%
15.39%
$
15.11%
877971
872004
15.11%
877971
Exhibits 8 & 9 Breakdown of ATIRR

Alison Green
900 Stony Walk
15.39%
15.11%
74.16%
66.48%
-18.45%
-26.76%
44.29%
60.28%
Exhibit 10 Breakdown of Futures
Alison Green
900 Stony Walk
$
3600000 $
3500000
$
978857 $
2747079
$
3235900 $
3379300
$
681818 $
512821
$
447885 $
476745
$
6685054 $
8636813
$
6685053 $
8636814
Exhibit 11 Supplementary Measures
Alison Green
900 Stony Walk
19.44%
19.82%
12.11%
12.02%
9.00%
8.70%
13.85%
13.38%
20.83%
23.74%
Ivy Terrace
2900000
Sean
8.39%
8.75%
4.06%
15.64%
738409 $
Festival
5432000
11.65%
10.00%
7.37%
16.03%
842278 $
20.11%
5518579
Ivy Terrace
3
Fowler
4
Festival
5 (worst)
9.12%
9.78%
11.72%
8.39%
8.75%
4.06%
11.65%
10.00%
7.37%
15.64%
738409
Ivy Terrace
15.64%
72.46%
-13.45%
40.99%
$
$
$
$
$
$
$
Group
Fowler
2400000
9.12%
9.78%
11.72%
Exhibit 7 Investment Ranking

Alison Green
900 Stony Walk
# 1 (best)
2
9.06%
9.33%
12.18%
( per methodology from case study )
9.19%
9.78%
9.76%
15.39%
872004 $
Example of Color Coding / Rating

Simple Return Measures
Cap Rate - Purchase (best is highest)
Cap Rate - Sale
(best is lowest)
Cash on Cash Return (year 1)
Discounted Return Measures
Internal rate of Return
Net Present Value @12% ( Wealth )
ATIRR
Raegan
900 Stony Walk

$
3500000
9.06%
9.33%
12.18%
( ranking responsibility of Alison Green member )
1102009
Matt
Alison Green
3600000
Ivy Terrace
2900000
897285
2385000
763636
327750
5090899
5090899
Ivy Terrace
19.15%
11.57%
8.68%
13.35%
18.36%
16.03%
842278
Fowler
16.03%
44.19%
-8.70%
64.52%
$
$
$
$
$
$
$
Fowler
2400000
1419774
4265800
602564
617370
6865640
6865640
Fowler
18.66%
11.69%
8.90%
13.69%
14.07%
20.11%
5518579
Festival
20.11%
54.35%
-44.13%
89.78%
$
$
$
$
$
$
$
Festival
5432000
13968000
14881600
858974
2203140
31219486
31219486
Festival
20.11%
16.88%
12.47%
19.18%
25.56%
Risk Analysis:
Scenarios Analysis & Risk Measures

SCENARIO ANALYSIS
MASTER
Rev. 10/31/13
Vacancy Rate
Annual Increase in NOI
Terminal Cap Rate
Pessimistic
7.50%
1.00%
0.09750
Vacancy Rate
Terminal Cap Rate
Pessimistic
9.00%
1.00%
0.10250
Vacancy Rate
Terminal Cap Rate
Pessimistic
17.50%
1.00%
0.11650
Alison Green
Most Likely
Optimistic
4.00%
4.00%
0.09000
Pessimistic
8.50%
1.00%
0.10000
Optimistic
4.00%
4.00%
0.09500
Pessimistic
7.50%
2.00%
0.09000
0.0100
Optimistic
5.00%
5.40%
0.09250
Return
Probability
9.68%
40%
40%
20%
5.00%
3.25%
0.0933
Ivy Terrace
Most Likely
7.00%
3.25%
0.0978
Festival
Most Likely
10.00%
3.25%
Stony Walk
Most Likely
5.00%
3.25%
0.0978
Fowler
Most Likely
0.0875
Optimistic
3.50%
5.40%
0.08250
Pessimistic
Probabilities
Most Likely
Optimistic
40.00%
40.00%
20.00%
(Return * Probability)
(R - Expected R)
P * (R - Expected R)
0.03872
0.06156
0.03488
-3.84%
1.87%
3.92%
0.05886%
0.01405%
0.03080%
7.00%
4.25%
Alison Green - ATIRR

Scenario
Pessimistic
Most Likely
Optimistic
15.39%
17.44%
Expected Return
Variance
Standard Deviation
13.52%
0.104%
3.22%
H
H
Stony Walk - ATIRR

Scenario
Pessimistic
Most Likely
Optimistic
Return
Probability
(R - Expected R)
8.65%
40%
40%
20%
0.0346
0.06044
0.03784
-4.64%
1.82%
5.63%
0.08604%
0.01328%
0.06344%
15.11%
18.92%
Expected Return
Variance
Standard Deviation
13.29%
0.163%
4.03%
H
H
Ivy Terrace - ATIRR

Scenario
Pessimistic
Most Likely
Optimistic
Return
Probability
(R - Expected R)
9.62%
40%
40%
20%
0.03848
0.06256
0.03724
-4.21%
1.81%
4.79%
0.07083%
0.01313%
0.04593%
15.64%
18.62%
Expected Return
Variance
Standard Deviation
13.83%
0.130%
3.60%
H
H
Fowler Building - ATIRR

Scenario
Pessimistic
Most Likely
Optimistic
Return
Probability
(R - Expected R)
10.22%
40%
40%
20%
0.04088
0.06412
0.04158
-4.44%
1.37%
6.13%
0.07878%
0.00753%
0.07520%
16.03%
20.79%
Expected Return
Variance
Standard Deviation
14.66%
0.162%
4.02%
H
H
Festival - ATIRR
Scenario
Pessimistic
Most Likely
Optimistic
Return
Probability
(R - Expected R)
10.09%
40%
40%
20%
0.04036
0.08044
0.0494
-6.93%
3.09%
7.68%
0.19210%
0.03819%
0.11796%
20.11%
24.70%
Expected Return
Variance
Standard Deviation
Optimistic
4.00%
5.00%
0.09500
17.02%
0.348%
5.90%
H
H
RISK MEASURES
Group # 5
Ryan
Matt
Raegan
Sean
Team
Risk Quantification
Property Type
Loan to Value Ratio
Debt Coverage Ratio w/o Lease
Debt Coverage Ratio w/ Lease
EDR (1st year)
Breakeven Occupancy %
Std. Partition of BTIRR % from Reversion
Std. Partition of BTIRR % from Operations
Breakdown of ATIRR % from BTCFO
Breakdown of ATIRR % from ATCFS
Breakdown of ATIRR % from Tax Effects *
Expected Return (ATIRR) (no color code)
Standard Deviation
16% Downside (1 std. dev. downside)
Coefficient of Variation ( / %)
Color Coding / Rating
Alison Green
Stony Walk
Ivy Terrace
Fowler
Festival
Apartment
Office
Apartment
Office
Retail
62.50%
2.02
2.02
12.18%
67.94%
55.18%
44.82%
74.16%
44.29%
-18.45%
13.52%
3.22%
10.30%
0.24
69.57%
1.48
1.48
9.76%
79.37%
53.61%
46.39%
66.48%
60.28%
-26.76%
13.29%
4.03%
9.26%
0.30
65.48%
1.94
1.80
11.72%
69.30%
53.68%
47.32%
72.46%
40.99%
-13.45%
13.83%
3.60%
10.23%
0.26
74.47%
1.27
1.14
4.06%
85.87%
33.36%
66.64%
44.19%
64.52%
-8.70%
14.66%
4.02%
10.64%
0.27
72.00%
1.22
1.22
7.37%
87.58%
71.42%
28.58%
54.35%
89.78%
-44.13%
17.02%
5.90%
11.12%
0.35
(least risk)
(most risk)
Supporting Exhibits
Alison Green
After Tax Investment Analysis
Data Input Boxes:
Purchase price
Building Value
9600000
7500000
Loan-to-Value
Loan Interest Rate
Loan Amortization Term
Payments per year
Terminal Cap Rate (%)
Holding Period
Selling costs
Equity discount rate (after Tax)
Reinvestment rate
NOI Annual Appreciation Rate
Equity
Loan
Annualized Loan Payments
Mortgage Balance at Sale (EOY)
63%
6.00%
30
12
9.33%
10
0%
12%
6%
3.25%
years
years
of sale price
3600000
6000000
431676
5021143
Tax Considerations:
Depreciation (in years)
Capital gains tax rate
Depreciation recapture rate
Ordinary income tax rate
Building Square Footage & Misc. Inputs:
Office (or Retail) Gross SF
Office (or Retail) Rentable SF
# Apartment Units
Property Tax (% gross Rent)
CAPX per apartment / yr.
CAPX per RSF office or retail/ yr.
Projected Vacancy Rate
year
10
27.5
15%
25%
35%
NA
NA
100
12%
$250.00
NA
5%
SUMMARY LOAN INFORMATION:

4
5
6
431676
431676
431676
5676872
5583261
5483877
343504
338066
332292
88172
93611
99384
End of Year
Payment
Mortgage Balance
Interest
Principal
1
431676
5926319
357996
73681
2
431676
5848094
353451
78225
3
431676
5765044
348626
83050
Gross Rentals
less Vacancy
plus Misc. Income
Effective Gross Income
OPEX (excl prop tax)
Property Taxes
CAPX Reserve (above the line)
Net Operating Income
Less Ground Lease (if applic.)
Subtotal
Less: Interest
Depreciation
Add back CAPX reserv
Preliminary Taxable Income (Loss)
PALL Suspended Loss Effect
Net Taxable Income (loss)
Tax or ( Tax Savings)
1440000
72000
0
1368000
300000
172800
25000
870200
0
870200
357996
272727
25000
264477
0
264477
92567
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
898482
0
898482
353451
272727
25000
297303
0
297303
104056
TAXABLE INCOME & AFTER-TAX CASH FLOW FROM OPERATIONS:

Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
927682
957832
988961
1021103
0
0
0
0
927682
957832
988961
1021103
348626
343504
338066
332292
272727
272727
272727
272727
25000
25000
25000
25000
331328
366600
403168
441083
0
0
0
0
331328
366600
403168
441083
115965
128310
141109
154379
7
431676
5378363
326162
105514
8
431676
5266341
319654
112022
9
431676
5147410
312745
118931
10
431676
5021143
305410
126267
11
431676
4887089
297622
134054
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1054288
0
1054288
326162
272727
25000
480399
0
480399
168140
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1088553
0
1088553
319654
272727
25000
521171
0
521171
182410
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1123931
0
1123931
312745
272727
25000
563458
0
563458
197210
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1160459
0
1160459
305410
272727
25000
607321
0
607321
212563
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1198173
0
1198173
297622
272727
25000
652824
0
652824
228488
Cumul. EOY Suspended Loss
Net Operating Income (NOI)

Less Debt Service (DS)
Before Tax Cash Flow
Less Tax
$870200
431676
0
$438524
92567
$898482
431676
0
$466805
104056
$927682
431676
0
$496006
115965
$957832
431676
0
$526155
128310
$988961
431676
0
$557285
141109
$1021103
431676
0
$589426
154379
$1054288
431676
0
$622612
168140
$1088553
431676
0
$656876
182410
$1123931
431676
0
$692254
197210
$1160459
431676
0
$728782
212563
$1198173
431676
0
$766497
228488
After-tax Cash Flow
$345957
$362749
$380041
$397845
$416176
$435047
$454472
$474467
$495044
$516220
$538009
AFTER-TAX CASH FLOW FROM SALE IN YR 10

Sales Price
Sales costs
Mortgage Balance
Before-tax cash flow
12835900
0
5021143
7814757
Original Cost Basis

plus Capital Expenditures
less Accumulated Depreciation
Adjusted Basis
9600000
250000
2727273
7122727
Sales Price
less Sales Costs
less Adjusted Basis
12835900
0
7122727
Capital Gain
less Depreciation recapture
Gain from price appreciation
less Suspended Loss (balance)
Taxable Gain from price apprec.
5713173
2727273
2985900
0
2985900
Tax on price appreciation

Tax on depreciation recapture
Total capital gain tax
After-Tax Cash Flow from Sale
447885
681818
Year
Before-Tax Cash Flow
After-Tax Cash Flow
1129703
6685053
0
($3600000)
($3600000)
Before-Tax IRR (BTIRRe)

After-Tax IRR (ATIRRe)
19.44%
15.39%
Effective Tax Rate
20.83%
1
$438524
$345957
AFTER-TAX NET PRESENT VALUE (NPV)

PV of ATCFo (at equity disc. rate per assumptions)
$2319909
PV of ATCFs (at equity disc. rate per assumptions)

Total AT Present Value
Less Original Equity Investment
After-Tax Net Present Value
2152408
4472317
-3600000
872017
BEFORE-TAX INVESTMENT ANALYSIS MEASURES
Price/Gross Square Foot (or per unit for apartments)

Price/Net Square Foot (or per unit)
Capitalization Rate (Going-in)
First Year Debt Coverage Ratio (DCR)
EDR ("cash on cash" yield)
Net Reinvestment Margin
$96000
$96000
9.06%
2.02
12.18%
1102009
2
$466805
$362749
CASH FLOW SUMMARY

4
$526155
$397845
$496006
$380041
5
$557285
$416176
6
$589426
$435047
7
$622612
$454472
8
$656876
$474467
9
$692254
$495044
10
$8543539
$7201273
900 Stony Walk

Data Input Boxes:
Purchase price
Building Value
11500000
8000000
Loan-to-Value
Loan Interest Rate
Payments per year
Holding Period
Selling costs
Reinvestment rate
Equity
Loan
70%
6.50%
20
12
9.78%
10
0%
12%
6%
3.25%
years
years
of sale price
3500000
8000000
715750
5252921
Tax Considerations:
# Apartment Units
year
10
39
15%
25%
35%
75000
67000
NA
12%
NA
0.3
5%

4
5
6
715750
715750
715750
7108522
6847130
6568231
470765
454358
436852
244985
261392
278898
End of Year
Payment
Mortgage Balance
Interest
Principal
1
715750
7798311
514062
201689
2
715750
7583115
500554
215196
3
715750
7353507
486142
229608
Gross Rentals
less Vacancy
plus Misc. Income
Property Taxes
Subtotal
Less: Interest
Depreciation
1742000
87100
0
1654900
368560
209040
20100
1057200
0
1057200
514062
205128
20100
358110
0
358110
125339
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1091559
0
1091559
500554
205128
20100
405977
0
405977
142092

Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1127035
1163663
1201482
1240531
0
0
0
0
1127035
1163663
1201482
1240531
486142
470765
454358
436852
205128
205128
205128
205128
20100
20100
20100
20100
455864
507870
562096
618650
0
0
0
0
455864
507870
562096
618650
159553
177755
196734
216528
7
715750
6270655
418173
297577
8
715750
5953149
398244
317506
9
715750
5614379
376980
338770
10
715750
5252921
354292
361458
11
715750
4867255
330085
385666
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1280848
0
1280848
418173
205128
20100
677646
0
677646
237176
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1322475
0
1322475
398244
205128
20100
739203
0
739203
258721
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1365456
0
1365456
376980
205128
20100
803447
0
803447
281207
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1409833
0
1409833
354292
205128
20100
870513
0
870513
304679
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1455653
0
1455653
330085
205128
20100
940540
0
940540
329189

Less Tax
$1057200
715750
0
$341450
125339
$1091559
715750
0
$375809
142092
$1127035
715750
0
$411284
159553
$1163663
715750
0
$447913
177755
$1201482
715750
0
$485732
196734
$1240531
715750
0
$524780
216528
$1280848
715750
0
$565098
237176
$1322475
715750
0
$606725
258721
$1365456
715750
0
$649706
281207
$1409833
715750
0
$694083
304679
$1455653
715750
0
$739902
329189
$216111
$233717
$251732
$270159
$288998
$308253
$327921
$348004
$368499
$389403
$410714
After-tax Cash Flow

Sales Price
Sales costs
Mortgage Balance
14879300
0
5252921
9626379
Original Cost Basis

Adjusted Basis
11500000
201000
2051282
9649718
Sales Price
less Sales Costs
less Adjusted Basis
14879300
0
9649718
Capital Gain
5229582
2051282
3178300
0
3178300

476745
512821
Year
After-Tax Cash Flow
989566
8636814
0
($3500000)
($3500000)

19.82%
15.11%
Effective Tax Rate
23.74%
1
$341450
$216111

$1597448

2780823
4378271
-3500000
877971

$153
$172
9.19%
1.48
9.76%
1102009
2
$375809
$233717
CASH FLOW SUMMARY

4
$447913
$270159
$411284
$251732
5
$485732
$288998
6
$524780
$308253
7
$565098
$327921
8
$606725
$348004
9
$649706
$368499
10
$10320462
$9026217
Ivy Terrace
Data Input Boxes:
Purchase price
Building Value
8400000
8400000
Loan-to-Value
Loan Interest Rate
Payments per year
Holding Period
Selling costs
Reinvestment rate
Equity
Loan
65%
6.00%
30
12
9.78%
10
0%
12%
6%
3.25%
years
years
of sale price
2900000
5500000
395703
4602715
Tax Considerations:
# Apartment Units
year
10
27.5
15%
25%
35%
NA
NA
80
10%
$250.00
NA
7%
1054288

4
5
6
395703
395703
395703
5203799
5117990
5026887
314879
309894
304601
80825
85810
91102
End of Year
Payment
Mortgage Balance
Interest
Principal
1
395703
5432459
328163
67541
2
395703
5360753
323997
71706
3
395703
5284624
319574
76129
Gross Rentals
less Vacancy
plus Misc. Income
Property Taxes
Subtotal
Less: Interest
Depreciation
1296000
90720
0
1205280
289980
129600
20000
765700
30000
735700
328163
305455
20000
122083
0
122083
42729
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
790585
30000
760585
323997
305455
20000
151134
0
151134
52897

Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
816279
842808
870200
898481
30000
30000
30000
30000
786279
812808
840200
868481
319574
314879
309894
304601
305455
305455
305455
305455
20000
20000
20000
20000
181250
212475
244851
278425
0
0
0
0
181250
212475
244851
278425
63438
74366
85698
97449
7
395703
4930166
298982
96721
8
395703
4827479
293017
102687
9
395703
4718459
286683
109020
10
395703
4602715
279959
115744
11
395703
4479832
272820
122883
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
927682
30000
897682
298982
305455
20000
313245
0
313245
109636
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
957831
30000
927831
293017
305455
20000
349360
0
349360
122276
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
988961
30000
958961
286683
305455
20000
386823
0
386823
135388
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1021102
30000
991102
279959
305455
20000
425689
0
425689
148991
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1054288
30000
1024288
272820
305455
20000
466013
0
466013
163105

Less Tax
$765700
395703
30000
$339997
42729
$790585
395703
30000
$364882
52897
$816279
395703
30000
$390576
63438
$842808
395703
30000
$417105
74366
$870200
395703
30000
$444496
85698
$898481
395703
30000
$472778
97449
$927682
395703
30000
$501978
109636
$957831
395703
30000
$532128
122276
$988961
395703
30000
$563258
135388
$1021102
395703
30000
$595399
148991
$1054288
395703
30000
$628585
163105
After-tax Cash Flow
$297268
$311985
$327138
$342739
$358798
$375329
$392343
$409852
$427869
$446408
$465480

Sales Price
Sales costs
Mortgage Balance
10785000
0
4602715
6182285
Original Cost Basis

Adjusted Basis
8400000
200000
3054545
5545455
Sales Price
less Sales Costs
less Adjusted Basis
10785000
0
5545455
Capital Gain
5239545
3054545
2185000
0
2185000

327750
763636
Year
After-Tax Cash Flow
1091386
5090899
0
($2900000)
($2900000)

19.15%
15.64%
Effective Tax Rate
18.36%
1
$339997
$297268

$1999576

1639133
3638709
-2900000
738409

$105000
$105000
9.12%
1.94
11.72%
1102009
2
$364882
$311985
CASH FLOW SUMMARY

4
$417105
$342739
$390576
$327138
5
$444496
$358798
6
$472778
$375329
7
$501978
$392343
8
$532128
$409852
9
$563258
$427869
10
$6777684
$5537307
Fowler Building
Data Input Boxes:
Purchase price
Building Value
9400000
9400000
Loan-to-Value
Loan Interest Rate
Payments per year
Holding Period
Selling costs
Reinvestment rate
Equity
Loan
74%
7.50%
25
12
8.75%
10
0%
12%
6%
4.25%
years
years
of sale price
2400000
7000000
620753
5580226
Tax Considerations:
# Apartment Units
year
10
39
15%
25%
35%
60000
50000
NA
10%
NA
0.3
7%

4
5
6
620753
620753
620753
6554943
6421278
6277237
496717
487088
476711
124035
133665
144041
End of Year
Payment
Mortgage Balance
Interest
Principal
1
620753
6900886
521639
99114
2
620753
6794078
513945
106808
3
620753
6678978
505653
115100
Gross Rentals
less Vacancy
plus Misc. Income
Property Taxes
Subtotal
Less: Interest
Depreciation
1275000
89250
0
1185750
254950
127500
15000
788300
70000
718300
521639
241026
15000
-29365
0
-29365
-10278
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
821803
70000
751803
513945
241026
15000
11833
0
11833
4141

Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
856729
893140
931099
970671
70000
70000
70000
70000
786729
823140
861099
900671
505653
496717
487088
476711
241026
241026
241026
241026
15000
15000
15000
15000
55051
100398
147985
197934
0
0
0
0
55051
100398
147985
197934
19268
35139
51795
69277
7
620753
6122014
465529
155224
8
620753
5954740
453479
167274
9
620753
5774480
440493
180260
10
620753
5580226
426499
194254
11
620753
5370891
411418
209334
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1011924
70000
941924
465529
241026
15000
250369
0
250369
87629
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1054931
70000
984931
453479
241026
15000
305427
0
305427
106899
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1099765
70000
1029765
440493
241026
15000
363247
0
363247
127136
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1146505
70000
1076505
426499
241026
15000
423981
0
423981
148393
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
1195232
70000
1125232
411418
241026
15000
487788
0
487788
170726

Less Tax
$788300
620753
70000
$97547
-10278
$821803
620753
70000
$131050
4141
$856729
620753
70000
$165977
19268
$893140
620753
70000
$202388
35139
$931099
620753
70000
$240346
51795
$970671
620753
70000
$279918
69277
$1011924
620753
70000
$321171
87629
$1054931
620753
70000
$364178
106899
$1099765
620753
70000
$409013
127136
$1146505
620753
70000
$455753
148393
$1195232
620753
70000
$504479
170726
After-tax Cash Flow
$107825
$126909
$146709
$167249
$188551
$210641
$233542
$257279
$281876
$307359
$333753

Sales Price
Sales costs
Mortgage Balance
13665800
0
5580226
8085574
Original Cost Basis

Adjusted Basis
9400000
150000
2410256
7139744
Sales Price
less Sales Costs
less Adjusted Basis
13665800
0
7139744
Capital Gain
6526056
2410256
4115800
0
4115800

617370
602564
Year
After-Tax Cash Flow
1219934
6865640
0
($2400000)
($2400000)

18.66%
16.03%
Effective Tax Rate
14.07%
1
$97547
$107825

$1032026

2210552
3242578
-2400000
842278

$157
$188
8.39%
1.27
4.06%
1102009
2
$131050
$126909
CASH FLOW SUMMARY

4
$202388
$167249
$165977
$146709
5
$240346
$188551
6
$279918
$210641
7
$321171
$233542
8
$364178
$257279
9
$409013
$281876
10
$8541327
$7173000
Festival Old Town

Data Input Boxes:
Purchase price
Building Value
19400000
13400000
Loan-to-Value
Loan Interest Rate
Payments per year
Holding Period
Selling costs
Reinvestment rate
Equity
Loan
72%
6.00%
10
12
10.00%
10
0%
12%
6%
4.25%
years
years
of sale price
5432000
13968000
1860881
0
Tax Considerations:
# Apartment Units
year
10
39
15%
25%
35%
103000
97000
NA
8%
NA
0.2
10%

4
5
6
1860881
1860881
1860881
9357056
8021260
6603076
602688
525086
442697
1258193
1335795
1418184
End of Year
Payment
Mortgage Balance
Interest
Principal
1
1860881
12916598
809479
1051402
2
1860881
11800347
744631
1116251
3
1860881
10615249
675783
1185098
Gross Rentals
less Vacancy
plus Misc. Income
Property Taxes
Subtotal
Less: Interest
Depreciation
3580000
358000
0
3222000
655200
286400
19400
2261000
0
2261000
809479
343590
19400
1127331
0
1127331
394566
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
2357093
0
2357093
744631
343590
19400
1288272
0
1288272
450895

Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
2457269
2561703
2670575
2784075
0
0
0
0
2457269
2561703
2670575
2784075
675783
602688
525086
442697
343590
343590
343590
343590
19400
19400
19400
19400
1457296
1634825
1821300
2017188
0
0
0
0
1457296
1634825
1821300
2017188
510054
572189
637455
706016
7
1860881
5097421
355226
1505655
8
1860881
3498901
262361
1598520
9
1860881
1801788
163768
1697113
10
1860881
0
59094
1801788
11
1860881
0
1860881
0
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
2902398
0
2902398
355226
343590
19400
2222982
0
2222982
778044
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
3025750
0
3025750
262361
343590
19400
2439199
0
2439199
853720
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
3154344
0
3154344
163768
343590
19400
2666387
0
2666387
933235
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
3288404
0
3288404
59094
343590
19400
2905120
0
2905120
1016792
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
Incl.
3428161
0
3428161
1860881
343590
19400
1243090
0
1243090
435081

Less Tax
$2261000
1860881
0
$400119
394566
$2357093
1860881
0
$496211
450895
$2457269
1860881
0
$596388
510054
$2561703
1860881
0
$700822
572189
$2670575
1860881
0
$809694
637455
$2784075
1860881
0
$923193
706016
$2902398
1860881
0
$1041517
778044
$3025750
1860881
0
$1164869
853720
$3154344
1860881
0
$1293463
933235
$3288404
1860881
0
$1427523
1016792
$3428161
1860881
0
$1567280
435081
$5553
$45316
$86334
$128633
$172239
$217178
$263473
$311149
$360228
$410730
$1132198
After-tax Cash Flow

Sales Price
Sales costs
Mortgage Balance
34281600
0
0
34281600
Original Cost Basis

Adjusted Basis
19400000
194000
3435897
16158103
Sales Price
less Sales Costs
less Adjusted Basis
34281600
0
16158103
Capital Gain
18123497
3435897
14687600
0
14687600

2203140
858974
Year
After-Tax Cash Flow
3062114
31219486
0
($5432000)
($5432000)

27.02%
20.11%
Effective Tax Rate
25.56%
1
$400119
$5553

$899040

10051839
10950879
-5432000
5518579

$188
$200
11.65%
1.22
7.37%
1102009
2
$496211
$45316
CASH FLOW SUMMARY

4
$700822
$128633
$596388
$86334
5
$809694
$172239
6
$923193
$217178
7
$1041517
$263473
8
$1164869
$311149
9
$1293463
$360228
10
$35709123
$31630216

Cartwright Final - Sean Linkletter

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Cartwright Final - Sean Linkletter

Uploaded by

Copyright:

Available Formats

Angus Cartwright Case

Executive Summary and

ANGUS CARTWRIGHT CASE

Conclusions as to relative risk tolerance in reaching for incremental return:

Risk Measures (ranking by priority)

Other Critical Variables (if applicable) :

Investment Recommendation for John DeRight:

ANGUS CARTWRIGHT CASE

Conclusions as to relative risk tolerance in reaching for incremental return:

Risk Measures (ranking by priority)

Investment Recommendation for Judy DeWright:

(This page is left intentionally blank)

Number of Units or Rentable Sq Ft

Gross Rents (GPI)

Exhibit 1 Basic Information

Exhibit 2 First Year Setups

Other OPEX / Gross Revenue

Exhibit 4 Break Even Analysis

Current or Projected Occupancy

Exhibit 3 Purchase and Operating Comparables

Exhibit 6 Financial Analysis

Return of Initial Cash (Equity)

Exhibits 8 & 9 Breakdown of ATIRR

Exhibit 7 Investment Ranking

( per methodology from case study )

Example of Color Coding / Rating

900 Stony Walk

( ranking responsibility of Alison Green member )

ANGUS CARTWRIGHT CASE

Alison Green - ATIRR

Stony Walk - ATIRR

Ivy Terrace - ATIRR

Fowler Building - ATIRR

Color Coding / Rating

SUMMARY LOAN INFORMATION:

TAXABLE INCOME & AFTER-TAX CASH FLOW FROM OPERATIONS:

Cumul. EOY Suspended Loss

Net Operating Income (NOI)

After-tax Cash Flow

AFTER-TAX CASH FLOW FROM SALE IN YR 10

Original Cost Basis

Tax on price appreciation

Before-Tax IRR (BTIRRe)

Effective Tax Rate

AFTER-TAX NET PRESENT VALUE (NPV)

PV of ATCFs (at equity disc. rate per assumptions)

BEFORE-TAX INVESTMENT ANALYSIS MEASURES

Price/Gross Square Foot (or per unit for apartments)

CASH FLOW SUMMARY

900 Stony Walk

SUMMARY LOAN INFORMATION:

TAXABLE INCOME & AFTER-TAX CASH FLOW FROM OPERATIONS:

Cumul. EOY Suspended Loss

Net Operating Income (NOI)

After-tax Cash Flow

AFTER-TAX CASH FLOW FROM SALE IN YR 10

Original Cost Basis

Tax on price appreciation

Before-Tax IRR (BTIRRe)

Effective Tax Rate

AFTER-TAX NET PRESENT VALUE (NPV)

PV of ATCFs (at equity disc. rate per assumptions)

BEFORE-TAX INVESTMENT ANALYSIS MEASURES

Price/Gross Square Foot (or per unit for apartments)