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Venture Capital Limited has formed a private real estate syndication to acquire and operate the Tower Office Building. Venture will act as the general partner and will have $35$ individual limited partners. The venture to be undertaken and relevant cost and financial data are summarized as follows:

Cost breakdown

Land $ $1,000,000$

Improvements $9,000,000($capitalized$)$

Points $130,000($amortized over loan term$)$

Subtotal $ $10,130,000$

Organization fee $160,000($amortized over $5$ years$)$

Syndication expenses $100,000($capitalized$)$

Total funding required $ $10,390,000$

Financing

Loan amount $ $8,000,000$

Interest rate $5\mathrm{.}95\%$

Term $25$ years $($monthly payments$)$

Points $ $100,000$

Partnership facts and equity requirements

Organization: December, year $1$

Number of partners: $1$ general partner and $35$ limited partners

Equity capital contribution: General partner, $10\%$; limited partners, $90\%$

Cash assessments: None

Cash distributions from operations: General partner, $10\%$; limited partners, $90\%$

Taxable income and losses from operations: General partner, $10\%$; limited partners, $90\%$

Allocation of gain or loss from sale: General partner, $15\%$; limited partners, $85\%$

Cash distribution at sale: Based on capital account balances

Operating and tax projections

Potential gross income $($year $2)$ $$1,540,000$

Vacancy and collection loss $10\%$ of potential gross income

Operating expenses $($year $2)35\%$ of effective gross income

Depreciation method Straight$-$line, $39$ years

Projected growth in income $2\%$ per year

Projected resale price after $5$ years $$12,930,000$

Ordinary income tax rate $24\%$

Capital gain tax rate $15\%$

Selling expenses $5\%$

Required:

a$.$ Determine an estimated return $($ATIRRe$)$ for a limited partner. $($Hint: Consider all $35$ limited partners as a single investor and the depreciation recapture tax to be the lesser of the ordinary income tax rate or the $25\%$ maximum recapture tax rate.$)$

b$.$ Determine an estimated return $($ATIRRe$)$ for the general partner.

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