Commercial Real Estate Women

1
Commercial Real Estate Women

• Office Condos Tax Advantages
• October 20, 2004

2
Objectives

• For taxable entity and tax
• exempt entity
• Annual cash cost comparison
• After tax cash cost analysis
• After tax/after investment proforma analysis

3
Lease/Purchase Comparison

• Key Assumptions
• 10,000 square foot space plus parking for 5 cars.
• Rent of 40/sq.ft. (gross) plus parking 5 cars at
  1.26 for a total of 412,600/annual (taxable
  entity).
• Rent of 36.50/sq.ft. (gross) plus parking, a
  total of 392,075/annual (tax exempt entity)
• Operating expense (included in gross rent) of
  14/sq.ft.

4

• These are year 1 amounts. Increases in operating
  expenses will be paid by both tenants (rent
  increase) and owner occupants (increase in
  operating expense/condo fees).
• Annual appreciation of 3. No building reserve
  payments considered.
• Interest rate 6.5, 25 year amort. for taxable
  entity example, 4, 30 yr amort. for tax exempt
  example.
• Down payment 10 for taxable entity example,
  none for tax exempt example.
• Tax rate 41 (35 Federal 6 effective DC
  tax rate)

5
Taxable Business Tenant and Owner Occupant10,000
Square Foot Proforma(Annual cost in thousands)

• Lease Purchase
• Rent (gross) 412 --
• Mortgage payment -- 320
• Operating expenses included in rent 140
• Pre-tax cash cost (412) (460)
• Adjust to taxable
• income
• Loan principal -- 78
• Depreciation -- (100)
• Taxable loss (412) (482)
• Tax savings at 41 169 198
• After tax cash
• cost (243) (262)

6
Proforma Investment Analysis Taxable Entity
(Annual, thousands)

• Lease Purchase
• Proforma Investment
• Adjustments
• Loan principal paid -- 78
• Lost earnings on down
• payment _at_ 3 (after tax) --
  (13)
• Appreciation in value
• _at_ 3 of purchase price -- 132
• Tax on appreciation _at_
• 25 -- (33)
• Net adjustments 0 164
• Cash cost after
• adjustments (243) (98)
• Difference 145/year

7
Tax Exempt Tenant Owner Occupant10,000 Square
Foot Proforma(Annual, thousands)

• Lease Purchase
• Cash cost (378) (392)
• Investment
• Adjustments
• Loan principal paid -- 93
• Lost earnings on down
• payments -- --
• Appreciation in value
• _at_3 of purchase price -- 132
• Investment adjustments 0 225
• After adjustments (378) (167)
• Difference 211/year