DISCLAIMER: THESE SPREADSHEETS ARE INTENDED FOR EDUCATIONAL USE ONLY.

USERS
SHOULD CONSULT WITH PROFESSIONAL ADVISORS AND SHOULD NOT RELY ON THE
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SHOULD BE INDEPENDENTLY VERIFIED.

List of Tables

figure 4-3a
Rent Summary

figure 4-3b
Pro Forma NOI

figure 4-3c
Maximum Debt Calculation

figure 4-3d
Development Costs

figure 4-3e
Stage 1 Analysis

figure 4-4
Stage 2 Analysis

figure 4-6
Stage 3 Analysis (Part 1)
Cash Flows During Development Period, Including Initial Lease-Up Activities

figure 4-7
Final Development Cost Summary

figure 4-8
Stage 3 Analysis (Part 2)
Annual Before and After-Tax Cash Flows during Development and Operating Period

figure 4-9
Stage 5 Analysis Investor Return

Notes
 figure 4-3a
Stage 1a-Rent Summary

No. of Area/Unit
4 Unit Type Units Rent/s.f. (s.f.) Total s.f. Rent/Month/Unit
5
6
7 A-1 1 Bedroom 80 $1.22 725 58,000 $884.50
8 B-1 2 Bedroom 90 $0.97 1,050 94,500 $1,018.50
9 C-1 3 Bedroom 30 $1.07 1,300 39,000 $1,391.00
10
11
12
13 Total Rental Income 200 $ 1.07 958 191,500 $1,020.78
14 Other Income (parking, concessions)
15 Total Income 200 $ 1.08 958 191,500 $1,037.44
Total Annual
Rent for Unit
Type

$849,120
$1,099,980
$500,760

$2,449,860
$40,000
$2,489,860
 figure 4-3b
Stage 1b - Pro Forma NOI

Annual
Revenue/Co
3 Factor st
4 Income
Gross Potential Rent (from Rent
5 Summary) $2,489,860
6 Less: Vacancy 5.00% $124,493
7
8 Adjusted Gross Rent $2,365,367
9
10
11 Total Cash In ###
12
13
14 Expenses
15 Property Management 3.50% of Adjusted Gross Rent $82,788
Controllable Costs (salaries,
16 maintenance, repairs, marketing) $ 2,200 per unit per year $440,000
17 Real Estate Taxes 2.60% 2.6%*estimated total project c $390,000
18 Insurance $275 per unit $55,000
19
20 Total Expenses $967,788
21
22 Net Operating Income ###

= link from another sheet

 figure 4-3c
Stage 1c - Maximum Debt Calculation
3 Pro Forma NOI and Value
4 Pro Forma NOI (from Exhibit 2) $1,397,579
5 Capitalization Rate 9.00%
6 Value (NOI/Cap Rate) $15,528,657
7
8 Loan Terms
9 Interest Rate 6.5%
10 Amortization (years) 30
11
12 Using Loan to Value (LTV)
13 Maximum LTV 70.00%
14 Maximum Loan Based on LTV $10,870,060
15
16 Using Debt Coverage Ratio (DCR)
17 Monthly NOI 116,465
18 Maximum DCR 1.25
19 Maximum Monthly Payment (NOI/DCR/12) $93,172
20 Maximum Loan Based on DCR $14,740,810
21
22 Maximum Loan (Lesser of LTV or DCR Result)
23 Maximum Principal $10,870,060
24 Monthly Payment $68,706
25 Annual Debt Service $824,474

= link from another sheet

 figure 4-3d
Stage 1d - Development Costs

5 Development Costs
6 Number of Units 200
7 Total Square Footage 191,500
8
9 Land $6,000 per unit $ 1,200,000
10 Rate No. of Months
11 Land Carry (note 1) 8.00% 3 24,000
12 Approval Fees 300 per unit 60,000
13 Construction Hard Cost $56.00 per s.f. gross area 10,724,000
14 Soft Costs:
15 Arch & Eng $1,600 per unit 320,000
16 Legal $125,000 total 125,000
17 Appraisal & title 0.50% of hard cost + $20k 73,620
18 Marketing $1,000 per unit 200,000
19 Taxes during construction 2.6% hard cost*1.25 348,530
20 Insurance during construction $275 per unit 55,000
21 Loan Origination Costs 2% permanent loan amo 217,401
22 Total Soft Costs 1,339,551
23 Developer Overhead 3% hard cost*1.25 402,150
24
25 Contingency 5% hard cost*1.25 536,200
26
27
28 Total Development Cost,Excluding Interest and Operating Reserve for Lease-up $ 14,285,901
29
30 Estimate of Construction Interest (note 2)
31 Permanent Loan $10,870,060
32 Construction Interest 7.50%
33 Construction Period (months) 12
34 Average Draw 65.00%
35 Estimated Construction loan interest 529,915
36
37
38 Total Project Cost before Operating Reserve 14,815,817
39
40 Estimate of Operating Reserve (note 3)
41 Gross
Lease-uppotential
PeriodRent (monthly)
(months to $207,488
reach stabilized occupancy) (note
42 4)
Average Occupancy during 12.00
43 Lease-up 48%
44 Estimated
Estimated rent during lease-up
op. expenses during 1,182,684
45 lease-up 967,788
46 NOI during lease-up 214,896
Construction interest during
47 lease-up
First Year Operating Reserve 815,255
48 Required 600,359
49
50
51 Total Project Costs $ 15,416,175

'=new link I created

 figure 4-3e
Stage 1e- Simple Ratios

5 Net Operating Income 1,397,579

6 Total Project Cost 15,416,175
7
Overall Return (Overall Cap-rate=NOI/Total
8 Project Cost) 9.1%
9
10 Net Operating Income 1,397,579
11 Annual Debt Service 824,474
12 Cash Throw-off (CTO or BTCF) 573,105
13
14
15 Total Project Cost 15,416,175
16 Permanent Mortgage 10,870,060
17 Equity 4,546,115
18
19 Cash-on-cash Return (CTO/Equity) 12.6%
20
21 Development Profit
22 NOI 1,397,579
23 Overall Cap-rate at sale 8.5%
24 Capitalized Value 16,442,108
25 Total Project Cost 15,416,175
26 Development Profit 1,025,932
 figure 4-4
Stage 2 Analysis
3 Project Costs
4 Total Project Cost $15,416,175
5 Total Proj. Cost B4 Op. Reserve $14,815,817
6 Land Cost $1,200,000
7
8 Financing Assumptions
9 Equity $4,546,115
10 Mortgage Principal $10,870,060
11 Interest Rate 6.50%
12 Amortization 30
13 Annual Debt Service $824,474
14
15 Depreciation Assumptions
16 Building Basis $13,615,817
17 Life (in years) 27.5
18 Acceleration Factor 1.0
19 Straight line (calculated) $495,121
20
21 MORTGAGE CALCULATION 1
22
23 Beginning Balance (note 6) 10,870,060
24 Ending Balance 10,748,563
25 Amortization of Principal 121,497
26 Interest 702,977
27
28 DEPRECIATION CALCULATION
29
30 Beginning Balance (note 7) 13,615,817
31 Less: Annual Depreciation 495,121
32 Ending Balance 13,120,696
33 Cumulative Depreciation Taken 495,121
34 Cumulative Straight Line 495,121
35 Recapture -
36 Remaining Book Value 14,320,696
37
38 Table 11, page 2
39
40 ANNUAL CASH FLOWS 1
41
42 Gross Rent (inflation rate) 3.00% 2,489,860
43 Vacancy (vacancy rate) 5.00% (124,493)
44 Adjusted Gross Income 2,365,367
45
46 Operating Expenses (inflation rate) 5.00% 967,788
47 Other Expenses -
48 Total Expenses 967,788
49
50 Net Operating Income 1,397,579
51
52 Annual Debt Service (824,474)
53
54 Before-Tax Operating Cash Flow 573,105
55
56 Tax Calculation
57
58 Net Operating Income 1,397,579
59 Interest (702,977)
60 Depreciation (495,121)
61
62 Taxable Income (Loss) 199,482
63 Passive Loss Offset (note 9) -
64
65 Taxable Income 199,482
66 Passive Loss Carryforward -
67
68 Taxes 28.00% 55,855
69
70 After Tax Cash Flow
71
72 Before-Tax Operating Cash Flow 573,105
73 Taxes (55,855)
74
75 After-Tax Operating Cash Flow 517,250
76 Table 11, page 3
77
78 SALE CALCULATION
79
80 Before Tax Cash Flow from Sale
81 Sale Price (cap rate of 8.5%, using next year NOI) 8.5%
82 Commission 4.00%
83 Adjusted Sales Price
84 Remaining Mortgage Balance
85 Before-Tax Cash Flow from Sale
86
87 Taxes
88 Adjusted Sales Price
89 Remaining Book Value
90 Total Taxable Gain
91 Passive Loss Carryforward
92 Total Gain
93 Total Depreciation Taken
94 Recapture Tax @ 25% 25%
95 Capital Gain
96
97 Tax on Capital Gain 20%
98
 99 After-Tax Cash Flow from Sale
100 Before-Tax Cash Flow from Sale
101 Total Tax (recapture + capital gain)
102 After-Tax Cash Flow from Sale
103
104
105
106 RETURN MEASURES Investment 1
107
108 Unleveraged IRR
109 Project Cost ###
110 Net Operating Income 1,397,579
111 Adjusted Sales Price
112 Total Before-Tax Cash Flow ### 1,397,579
113
114 Unleveraged IRR 10.81%
115 Net Present Value @ 10.0%(note 5) $636,801
116
117
118 Before Tax IRR
119 Equity $ (4,546,115)
120 Before-Tax Operating Cash Flow 573,105
121 Before-Tax Cash Flow from Sale
122 Total Before-Tax Cash Flow $ (4,546,115) 573,105
123
124 Before-Tax IRR 19.15%
125 Net Present Value @ 12.0% $1,785,317
126
127
128 After Tax IRR
129 Equity $ (4,546,115)
130 After-Tax Operating Cash Flow 517,250
131 After-Tax Cash Flow from Sale
132 Total After-Tax Cash Flow $ (4,546,115) 517,250
133
134 After-Tax IRR 15.43%
135
136 Simple Return Measures
137 NOI/Project Cost 9.1%
138 Before Tax Cash Flow/Equity 12.6%
139 Tax Shelter/Equity -

= link from another sheet

 2 3 4 5 6 7

10,748,563 10,618,928 10,480,612 10,333,033 10,175,570 10,007,561

10,618,928 10,480,612 10,333,033 10,175,570 10,007,561 9,828,300
129,634 138,316 147,579 157,463 168,009 179,261
694,840 686,158 676,895 667,011 656,465 645,213

13,120,696 12,625,575 12,130,455 11,635,334 11,140,214 10,645,093

495,121 495,121 495,121 495,121 495,121 495,121
12,625,575 12,130,455 11,635,334 11,140,214 10,645,093 10,149,972
990,241 1,485,362 1,980,482 2,475,603 2,970,724 3,465,844
990,241 1,485,362 1,980,482 2,475,603 2,970,724 3,465,844
- - - - - -
13,825,575 13,330,455 12,835,334 12,340,214 11,845,093 11,349,972

2 3 4 5 6 7

2,564,556 2,641,492 2,720,737 2,802,359 2,886,430 2,973,023

(128,228) (132,075) (136,037) (140,118) (144,322) (148,651)
2,436,328 2,509,418 2,584,700 2,662,241 2,742,109 2,824,372

1,016,177 1,066,986 1,120,335 1,176,352 1,235,170 1,296,928

- - - - - -
1,016,177 1,066,986 1,120,335 1,176,352 1,235,170 1,296,928
1,420,151 1,442,432 1,464,365 1,485,889 1,506,939 1,527,444

(824,474) (824,474) (824,474) (824,474) (824,474) (824,474)

595,677 617,958 639,891 661,415 682,465 702,970

1,420,151 1,442,432 1,464,365 1,485,889 1,506,939 1,527,444

(694,840) (686,158) (676,895) (667,011) (656,465) (645,213)
(495,121) (495,121) (495,121) (495,121) (495,121) (495,121)

230,190 261,153 292,350 323,758 355,353 387,110

- - - - - -

230,190 261,153 292,350 323,758 355,353 387,110

- - - - - -

64,453 73,123 81,858 90,652 99,499 108,391

595,677 617,958 639,891 661,415 682,465 702,970

(64,453) (73,123) (81,858) (90,652) (99,499) (108,391)

531,223 544,835 558,033 570,763 582,966 594,579

18,203,863
(728,155)
17,475,709
(9,828,300)
7,647,409

17,475,709
(11,349,972)
6,125,736
-
6,125,736
3,465,844
(866,461)
2,659,892

531,978
 7,647,409
(1,398,439)
6,248,969

2 3 4 5 6 7

1,420,151 1,442,432 1,464,365 1,485,889 1,506,939 1,527,444

17,475,709
1,420,151 1,442,432 1,464,365 1,485,889 1,506,939 19,003,152

595,677 617,958 639,891 661,415 682,465 702,970

7,647,409
595,677 617,958 639,891 661,415 682,465 8,350,378

531,223 544,835 558,033 570,763 582,966 594,579

6,248,969
531,223 544,835 558,033 570,763 582,966 6,843,548

9.2% 9.4% 9.5% 9.6% 9.8% 9.9%

13.1% 13.6% 14.1% 14.5% 15.0% 15.5%
- - - - - -
 8

9,828,300
9,637,034
191,266
633,208

10,149,972
495,121
9,654,852
3,960,965
3,960,965
-
10,854,852

3,062,214
(153,111)
2,909,103

1,361,775
-
1,361,775
1,547,328

(824,474)

722,854

1,547,328
(633,208)
(495,121)

419,000
-

419,000
-

117,320

722,854
(117,320)

605,534
 Sta
Cash Flows During Developm

4 Development Costs Data Total

5 Land $1,200,000 1,200,000
6 Land Carry $24,000 24,000
7 Approval Fees $60,000 60,000
8 Construction Hard Cost $10,724,000 10,724,000
9 Soft Costs: 0
10 Arch & Eng 320,000 320,000
11 Legal 125,000 125,000
12 Appraisal & title 73,620 73,620
13 Marketing 200,000 200,000
14 Taxes during construction 348,530 348,530
15 Insurance during construction 55,000 55,000
16 Loan Origination Costs 217,401 217,401
17 Developer Overhead 402,150 402,150
18 Contingency 536,200 536,200
19
Total Development Cost, Excl. Constr. Loan
20 Interest and Operating Reserves $14,285,901 14,285,901
21
22
23 Operating Income (loss) During Lease-Up
24 Months to Reach Stabilized Occupancy 12.00
25 Apartments Leased per quarter
26 Cumulative Number of Apartments Leased
27 Vacancy Due to Lease-Up (% of Gross Potential)
28 Stabilized Vacancy (% of Gross Potential) 5%
29 Overall Vacancy Rate
30 Gross Potential Rent for Qtr (from pro forma NOI) 622,465 2,489,860
31 Vacancy Loss ($) (964,821)
32 Adjusted Gross Rent 1,525,039
33 Total Revenue 1,525,039
34
35 Operating Expenses 967,788
36
37 Net Operating Income 557,251
38
39 Combined Cash Flow During Development Period B4 Int (13,728,650)
40
41 Construction Loan Balance and Interest Calculation
42 Data Total
43
44 Maximum Loan Balance (from Financing Calculat 10,870,060
45
46 Equity Sources 4,546,115 4,546,115
47 Equity Account ending Balance 4,546,115
48
49
50 Construction Loan Account
51 Beginning Balance
52 Loan Draw
53 Construction Draw 9,739,786
54 Operating Deficit 86,331
55 Trial balance 10,385,065
56 Additional Equity Required 0
57
58 Ending Balance B4 Interest
59 Average Loan Balance
60 Total Construction loan interest 7.5% 1,010,446
61 Interest Accrued During Construction Period 268,867
62 Interest Accrued During Operating Period 741,579
63 Interest Paid from Operations 451,498
64 Trial Ending Balance 10,385,065
65 Additional Equity Required 0
66
67 Ending Balance 10,385,065
68
69 Total Additional Equity Required 0
70 Cash flow after interest 192,084

= link from another sheet

= included from Development cost sheet and not EX7-principal
 figure 4-6
Stage 3 Analysis (Part 1)
Flows During Development Period, Including Initial Lease-Up Activities
Development
Time Zero Year 1 Total Year 2 Total Quarter 1 Quarter 2 Quarter 3 Quarter 4
1,200,000 0 0
$24,000 0 0
$60,000 0 0
10,724,000 0 $2,681,000 $2,681,000 $2,681,000 $2,681,000

320,000 - 320,000
125,000 - -
73,620 - -
100,000 100,000 50,000 25,000 25,000
174,265 174,265 43,566 43,566 43,566 43,566
27,500 27,500 6,875 6,875 6,875 6,875
217,401 - -
201,075 201,075 50,269 50,269 50,269 50,269
268,100 268,100 67,025 67,025 67,025 67,025

$1,700,021 $11,814,940 $770,940 $3,218,735 $2,848,735 $2,873,735 $2,873,735

0 0
0 200
0 200
0 38%
0 5%
0 39%
0 2,489,860
0 (964,821)
0 1,525,039
0 1,525,039
0
- 967,788
0
0 557,251
0 0
(1,700,021) (11,814,940) (213,689) ($3,218,735) ($2,848,735) ($2,873,735) ($2,873,735)

Time Zero Year 1 Total Year 2 Total Quarter 1 Quarter 2 Quarter 3 Quarter 4
1,700,021 2,846,094 0 2,846,094 0 0 0
1,700,021 4,546,115 4,546,115 4,546,115 4,546,115 4,546,115 4,546,115

6,220,404 10,192,330 0 376,134 3,258,629 6,220,404

8,968,846 770,940 372,641 2,848,735 2,873,735 2,873,735

0 86,331 0 0 0 0
9,094,139 10,385,065 372,641 3,224,869 6,132,364 9,094,139
0 0 0 0 0 0

372,641 3,224,869 6,132,364 9,094,139

186,320 1,800,502 4,695,496 7,657,272
268,867 741,579 3,494 33,759 88,041 143,574
268,867 0 3,494 33,759 88,041 143,574
0 741,579 0 0 0 0
0 451,498 0 0 0 0
9,237,713 10,385,065 376,134 3,258,629 6,220,404 9,237,713
0 0 0 0 0 0

9,237,713 10,385,065 376,134 3,258,629 6,220,404 9,237,713

0 0 0 0 0 0
0 192,084

$14,554,769

451,498 290,081
290,081
($86,331) ($270,658)
-

Eq+line 89 - line 101 Eq+Cash flow from ops - cash

Activities
Lease-Up
Quarter 5 Quarter 6 Quarter 7 Quarter 8

25,000 25,000 25,000 25,000

43,566 43,566 43,566 43,566
6,875 6,875 6,875 6,875

50,269 50,269 50,269 50,269

67,025 67,025 67,025 67,025

$192,735 $192,735 $192,735 $192,735

50 50 50 50
50 100 150 200
75.00% 50.00% 25.00% 0.00%
0.00% 0.00% 0.00% 5.00%
75.00% 50.00% 25.00% 5.00%
622,465 622,465 622,465 622,465
(466,849) (311,233) (155,616) (31,123)
155,616 311,233 466,849 591,342
155,616 311,233 466,849 591,342

241,947 241,947 241,947 241,947

($86,331) $69,286 $224,902 $349,395

($279,066) ($123,449) $32,167 $156,660

Quarter 5 Quarter 6 Quarter 7 Quarter 8

 0 0 0 0
4,546,115 4,546,115 4,546,115 4,546,115

9,237,713 9,692,602 9,999,595 10,192,330

192,735 192,735 192,735 192,735

86,331 0 0 0
9,516,779 9,885,337 10,192,330 10,385,065
0 0 0 0

9,516,779 9,885,337 10,192,330 10,385,065

9,377,246 9,788,970 10,095,962 10,288,697
175,823 183,543 189,299 192,913
0 0 0 0
175,823 183,543 189,299 192,913
0 69,286 189,299 192,913
9,692,602 9,999,595 10,192,330 10,385,065
0 0 0 0

9,692,602 9,999,595 10,192,330 10,385,065

0 0 0 0
$0 $0 $35,602 $156,482
Eq+Cash flow from ops - cash flow from ops after int)
 figure 4-7
Stage 3 Development Cost Summary
3
4 USES TOTAL
5
6 Total Dev Costs $14,285,901
7 Capitalized Constr. Loan int. 4 QTRS 268,867
8 Total Capital Costs $14,554,769
9
10 Cash Flow from operations
11 NOI 557,251
12 Constr. Loan int during ops. 741,579
13 Permanent debt service 0
14 Cash Flow from ops after int (184,328)
15 Total Uses $14,739,096
16
17 SOURCES
18 Constr. Loan Ending Balance 10,385,065
19 Perm. Loan ending balance 0
20 Equity ending balance 10,792,252
21
22 Constr Loan Sources 10,385,065
23 Perm. Loan Sources -
24 Equity Sources 4,546,115
25 Additional Equity Required -
26 Positive cash flow after int. 192,084
27 Total Sources 14,739,096
28
29 Check

Equity for cap. Inv (equity sources+cash flow from ops - positive cash
30 flow after int) (note 10) 4,169,704

31 Equity for Capital Investment (Total Capital Costs - loan sources) 4,169,704
32
33 Summary
34
35 Capital Costs
36 Total Development Cost Excluding Interest $ 14,285,901
37 Interest Accrued During Construction (Table 13, line 61) $ 268,867
38 Total Capital Costs $ 14,554,769
39
40 Depreciable Basis
41 Total Capital Costs $ 14,554,769
42 Land Cost $ 1,200,000
43 Depreciable Basis (Capital Cost, minus Land) $ 13,354,769
44
45 Operating Reserve
46 Operating Loss During Lease-up (Table 13, line 54) $ 86,331
47 Interest Accrued During Operating Period (T 13, line 64) $ 741,579
48 Interest Paid During Operating Period (T 13, line 63) $ 451,498
49 Total Operating Reserve funded by Constr. Loan $ 376,412
50
51 Total Project Cost (Capital Costs plus Operating Reserve) $ 14,931,180
52 Positive cash flow after int. 192,084
53 Total Project Cost after first year operations $ 14,739,096
54 = link from another sheet
55
56 Cash Proceeds from Permanent Loan Takeout
57 Permanent Mortgage Amount 10,870,060
58 Construction Loan Ending Balance 10,192,330
59 Cash proceeds from Permanent Loan Takeout 677,730

Stage 3 (Table Stage 1d (Table 10)

construction interest $ 268,867 529,915
operating reserve $ 376,412 600,359
Summary
YEAR
0 1 2

$1,700,021 $11,814,940 $770,940

0 268,867 0
$1,700,021 $12,083,807 $770,940

0 0 557,251
0 0 741,579
0 0 0
0 0 (184,328)
$1,700,021 $12,083,807 $955,268

0 9,237,713 10,385,065
0 0
1,700,021 4,546,115 4,546,115

- 9,237,713 1,147,352
- - -
1,700,021 2,846,094 -
- - -
- - 192,084
1,700,021 12,083,807 955,268

1,700,021 2,846,094 (376,412)

1,700,021 2,846,094 (376,412)

 figure 4-8
Stage 3 Analysis (Part 2)
Combined Annual Before and After-Tax Cash Flows during Development and

Development Period Investme

4 Mortgage Calculation Initial Investment Year 1 Year 2 Year 3 Year 4
5 Beginning Balance (note 6) 10,870,060 ### 10,748,563
6 Ending Balance 10,870,060 ### 10,618,928
7 Amortization of Principal 121,497 129,634
8 Interest 702,977 694,840
9
10 DEPRECIATION CALCULATION
11 Beginning Balance (note 7) 13,354,769 ### 12,364,527
12 Less: Annual Depreciation 495,121 495,121 495,121
13 Ending Balance 12,859,648 ### 11,869,407
14 Cumulative Depreciation Taken 495,121 990,241 1,485,362
15 Cumulative Straight Line 495,121 990,241 1,485,362
16 Recapture 0 0 0
17 Remaining Book Value 14,059,648 ### 13,069,407
18
19 ANNUAL CASH FLOWS Year 1 Year 2 Year 3 Year 4
20 Gross Rent 3% 2,489,860 2,564,556 2,802,359
21 Vacancy Rate 5% 5.00% 5.00%
22 Vacancy ($) 964,821 128,228 140,118
23 Adjusted Gross Income 1,525,039 2,436,328 2,662,241
24
25 Total Cash In 1,525,039 2,436,328 2,662,241
26
27 Operating Expenses 5.00% 967,788 1,016,177 1,066,986
28 Total Expenses 967,788 1,016,177 1,066,986
29
30 Net Operating Income 557,251 1,420,151 1,595,255
31 - Construction Loan Interest 741,579
32 - Annual Debt Service 0 (824,474) (824,474)
33 + Operating Reserve Funded by Construction Loan (note 8) 376,412
34
35 Before Tax Cash Flow 192,084 595,677 770,781
36
37 Exhibit 14, continued
38
39 TAX CALCULATION
40 Net Operating Income 557,251 1,420,151 1,595,255
41 - Interest (741,579) (702,977) (694,840)
42 -Depreciation (495,121) (495,121) (495,121)
43
44 Taxable Income (Loss) (679,448) 222,054 405,295
45 Less: Passive Loss Offset 0 222,054 405,295
46
47 Taxable Income 0 0
48 Passive Loss Carryforward (679,448) (457,395) (52,100)
49
50 Taxes 28.00% 0 0
51
52
53 AFTER-TAX CASH FLOW FROM OPERATIONS
54 Before Tax Cash Flow 192,084 595,677 770,781
55 Less: Taxes 0 0 0
56
57 After Tax Cash Flow 192,084 595,677 770,781
58
59 SALE CALCULATION Year 1 Year 2 Year 3 Year 4
60
61 Sales Price End of Year 9, based 8.5%
62 Less: Commission 4.00%
63 Adjusted Sales Price
64 Less: Remaining Balance on Mortgage
65 Cash From Sale Before Tax
66
67 Taxes:
68 Adjusted Sales Price
69 Less: Remaining Book Value
70 Total Taxable Gain
71 Less: Passive Loss Carryforward
72 Total Gain after passive loss
73 Total Depreciation Taken
74 Recapture Tax 25%
75 Capital Gain
76 Tax on Capital Gain 20%
77 Total Tax From Sale
78 Cash From Sale Before Tax
79 Less: Tax
80 Cash From Sale After Tax
81 Table 14, continued
82
83 Return Analysis Initial Investment Year 1 Year 2 Year 3 Year 4
84 Equity (-) (4,546,115) 0 0
85 Cash Proceeds from Perm. Takeout 677,730
86 Before Tax Cash Flows from Operations 0 192,084 595,677 770,781
87 Cash Flow From Sale Before Tax
88 Total Before Tax Cash Flow (4,546,115) 0 869,814 595,677 770,781
89 Before Tax IRR 19.63%
90 Equity(-) (4,546,115) - -
91 Cash Proceeds from Perm. Takeout 677,730
92 After Tax Cash Flows from Operations 0 192,084 595,677 770,781
93 Cash Flow From Sale After Tax
94 Total After Tax Cash Flow (4,546,115) 0 869,814 595,677 770,781
95 After Tax IRR 16.99%

= link from another sheet

2)
g Development and Operating Period

Investment Period
Year 5 Year 6 Year 7 Year 8 9 Year 10 Year 11 Year 12
### ### 10,333,033 10,175,570 10,007,561 9,828,300 9,637,034 9,432,959
### ### 10,175,570 10,007,561 9,828,300 9,637,034 9,432,959 9,215,216
138,316 147,579 157,463 168,009 179,261 191,266 204,075 217,743
686,158 676,895 667,011 656,465 645,213 633,208 620,399 606,731

### ### 10,879,165 10,384,045 9,888,924 9,393,804 8,898,683 8,403,562

495,121 495,121 495,121 495,121 495,121 495,121 495,121 495,121
### ### 10,384,045 9,888,924 9,393,804 8,898,683 8,403,562 7,908,442
1,980,482 2,475,603 2,970,724 3,465,844 3,960,965 4,456,085 4,951,206 5,446,327
1,980,482 2,475,603 2,970,724 3,465,844 3,960,965 4,456,085 4,951,206 5,446,327
0 0 0 0 - 0 0 0
### ### 11,584,045 11,088,924 10,593,804 10,098,683 9,603,562 9,108,442

Year 5 Year 6 Year 7 Year 8 9 Year 10 Year 11 Year 12

2,886,430 2,973,023 3,062,214 3,154,080 3,248,703 3,346,164 3,446,549 3,549,945
5.00% 5.00% 5.00% 5.00% 0 5.00% 5.00% 5.00%
144,322 148,651 153,111 157,704 162,435 167,308 172,327 177,497
2,742,109 2,824,372 2,909,103 2,996,376 3,086,267 3,178,855 3,274,221 3,372,448

2,742,109 2,824,372 2,909,103 2,996,376 3,086,267 3,178,855 3,274,221 3,372,448

1,120,335 1,176,352 1,235,170 1,296,928 1,361,775 1,429,863 1,501,357 1,576,424

1,120,335 1,176,352 1,235,170 1,296,928 1,361,775 1,429,863 1,501,357 1,576,424

1,621,773 1,648,020 1,673,933 1,699,448 1,724,493 1,748,992 1,772,865 1,796,023

(824,474) (824,474) (824,474) (824,474) (824,474) (824,474) (824,474) (824,474)

797,299 823,546 849,459 874,974 900,019 924,518 948,390 971,549

1,621,773 1,648,020 1,673,933 1,699,448 1,724,493 1,748,992 1,772,865 1,796,023

(686,158) (676,895) (667,011) (656,465) (645,213) (633,208) (620,399) (606,731)
(495,121) (495,121) (495,121) (495,121) (495,121) (495,121) (495,121) (495,121)

440,495 476,005 511,802 547,862 584,159 620,663 657,345 694,171

52,100 0 0 0 - 0 0 0

388,395 476,005 511,802 547,862 584,159 620,663 657,345 694,171

0 0 0 0 - 0 0 0

108,751 133,281 143,304 153,401 163,564 173,786 184,057 194,368

797,299 823,546 849,459 874,974 900,019 924,518 948,390 971,549

108,751 133,281 143,304 153,401 163,564 173,786 184,057 194,368

688,549 690,264 706,155 721,572 736,454 750,732 764,334 777,181

Year 5 Year 6 Year 7 Year 8 9 Year 10 Year 11 Year 12 0

0
20,576,377 0
823,055 0
19,753,322 0
9,828,300 0
9,925,022 0
0
0
19,753,322 0
 10,593,804 0
9,159,518 0
- 0
9,159,518 0
3,960,965 0
990,241
5,198,553
1,039,711
2,029,952 0
9,925,022 0
2,029,952 0
7,895,070 0

Year 5 Year 6 Year 7 Year 8 Year 9

797,299 823,546 849,459 874,974 900,019

9,925,022
797,299 823,546 849,459 874,974 10,825,040

688,549 690,264 706,155 721,572 736,454

7,895,070
688,549 690,264 706,155 721,572 8,631,524
 figure 4-9
Stage 5 Analysis Investor Re

3 Initial Equity ###

4 Cumulative Preferred Return 8%
5 Investor Priority Payback of Equity 80%
6 Investor Share of Remaining Cash Flow 70%
7
8 Development Period
Initial
9 Investment Year 1 Year 2 Year 3
10
11 Before Tax Cash Flow ### ### ###
12
13 Preferred Return
14 Beginning Equity Account Balance ### ###
15 Preferred Return Earned 363,689 331,297
16 Preferred Return Paid Currently 363,689 331,297
17
18 Unpaid Return Account
19 Beginning Balance 0 0
20 Deferred Preferred Return 0 0
21 Deferred Preferred Return Paid 0 0
22 Ending Balance 0 0
23
24 Equity Account Balance
25 Beginning Equity Account Balance ### ###
26 Equity Payback 404,900 211,504
27 Ending Balance ### ###
28
29 Equity Payments Re-Cap
30 Preferred Return Paid Currently 363,689 331,297
31 Deferred Preferred Return Paid 0 0
32 Equity Payback 404,900 211,504
33 Total Payments on Equity 768,589 542,801
34
35 Remaining Cash Flow
36 Before Tax Cash Flow 869,814 595,677
37 Total Payments on Equity 768,589 542,801
38 Remaining Cash Flow 101,225 52,876
39
40 Investor Share of Remaining Cash Flow 70,858 37,013
41
42 Investor Cash Flow Recap
43 Investment (4,546,115)
44 Total Payments on Equity 768,589 542,801
45 Investor Share of Remaining Cash Flow 70,858 37,013
46 Before-Tax Investor Cash Flow ### $ 0 ### ###
47
48 Investor Before-Tax IRR 16.85%
49 Net Present Value, at 15.0% 1,255,607
50
51 Developer Cash Flows
52 Before-Tax Cash Flow to Developer $ 0 $ 0 $ 30,368 $ 15,863
53
54 Net Present Value, at 15.0% ###

Discount Rate: 15%

 figure 4-9
nalysis Investor Return

Investment Period

Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

$770,781 $797,299 $823,546 $849,459 $874,974 ###

3,929,712 3,564,588 3,154,883 2,697,959 2,191,061 1,631,309

314,377 285,167 252,391 215,837 175,285 130,505
314,377 285,167 252,391 215,837 175,285 130,505

0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0

3,929,712 3,564,588 3,154,883 2,697,959 2,191,061 1,631,309

365,123 409,706 456,924 506,898 559,751 1,631,309
3,564,588 3,154,883 2,697,959 2,191,061 1,631,309 0

314,377 285,167 252,391 215,837 175,285 130,505

0 0 0 0 0 0
365,123 409,706 456,924 506,898 559,751 1,631,309
679,500 694,873 709,315 722,735 735,036 1,761,814

770,781 797,299 823,546 849,459 874,974 10,825,040

679,500 694,873 709,315 722,735 735,036 1,761,814
91,281 102,426 114,231 126,725 139,938 9,063,226

63,897 71,698 79,962 88,707 97,956 6,344,258

679,500 694,873 709,315 722,735 735,036 1,761,814

63,897 71,698 79,962 88,707 97,956 6,344,258
$743,397 $766,571 $789,276 $811,442 $832,992 ###
$ 27,384 $ 30,728 $ 34,269 $ 38,017 $ 41,981 ###
 Notes

1
Land carry refers to interest paid to the land seller as part of the land purchase contract.
2
This calculation is a preliminary estimate of interest during construction. A more accurate estimate will
be made as part of the Stage 3 analysis, and even more accurate estimate in Stage 4 (not shown).
3
Operating Reserve during lease-up represents the subsidy that will be required to cover operating costs
and debt service before the project reaches break-even occupancy.
4
Based on market studies, the project is projected to lease at a rate of 16.6 units per month. The project
will then take 12 months to be fully leased. (200 16.6 =12)
5
Net Present Value equals the present value of future cash flows, less the initial investment. The
unleveraged NPV represents the development profit.
6
The permanent mortgage balance was determined based on value and cash flow. During the
development period, only interest would be paid on the construction loan. Amortization would begin
upon the funding of the permanent loan, after stabilization.
7
The depreciable basis is the total project cost, excluding land costs and operating losses during the
lease-up period. The remaining book value includes the land cost. Personal property is included in the
depreciable basis here for simplicity. It can be tracked separately. Also, apartment buildings may be
brought on-stream at different in successive months as construction is completed. A separate
depreciation spreadsheet may be added to account for these nuances. That level of accuracy,
however, is inappropriate for early Stage 2 analyses since other assumptions are at best good
approximations.
8 The operating reserve includes funds needed to cover operating costs and debt service during the
lease-up period.
9
Current tax laws treat real estate as passive income and limit the amount of loss one can take. Passive
losses can only be taken against other passive income (with minor adjustments for small investors). In
this example, passive loss limitation rules do not apply since taxable income is positive. Stage 3, Table
15, shows the treatment where Taxable Income is negative. See Brueggeman and Fisher (2002) for
more information.
Equity for Capital Investment provides a helpful check for Stage 3. One must be careful not to double
count this equity since it comes not only from new equity but also from positive operating cash flows
10 during lease-up. Line 30 and Line 31 in Table 14 should be equal for each year.