Angus Cartwright Harvard Case Solution & Analysis

Angus Cartwright Case Study Solution


From the analysis conducted above it can be concluded that Fowler building is a better option for investment due to its better financial position.  Its equity requirement are lower with comparatively higher capital gains at the end of 10 years. With the opportunity of growing property prices, Fowler Building would be profitable. In addition, the net present value of Fowler at the end of 10 years is about three times to that of Stony Walk. Its IRR is also 24%, which is way above to 3% of Stony Walk, making it more desirable to undertake. Furthermore, Fowler’s LTV ratio is lower, making it easier for them to take loans.


Exhibit 1: List of Salient Features

List of Salient Facts900 Stony WalkThe Fowler Building
-Constant Loan Payments (Annual  Constant*)6.84%6.67%
-Amortization Period2525
-Term of Loan1010
-Interest Rate4.75%4.45%
-Amount of 1st Mortgage1225000021000000
-Equity Investment70000006500000
-Cash Flow from Operations (CFO)10500001865000
-Expected Year of Sale1010
-Estimated Sales Price1700000034500000
-Depreciable Life3939
-Depreciable Base1150000021000000
-Gross Purchase Price1500000027500000
-Leasehold Payments0295000
- Units or SF of Rentable Space67000135000
-Annual Increase in CFO3%3%

Exhibit 2: First year project setups

First Year Project Setups900 Stony WalkThe Fowler Building
Potential Gross Income (PGI)          1,050,000               1,865,000
-Vacancies              52,500                   93,250
Effective Gross Income (EGI)            997,500               1,771,750
-Real Estate Taxes            126,000                  186,500
-Other Operating Expenses            382,570                  337,598
-Capital Reserves (aka Replacement Reserves)              25,000                   25,000
Cash Flow from Operations (CFO) (aka NOI)            463,930               1,222,652
-Finance Payments            448,350                   75,348
-Lease Payments                     -                  295,000
BTCF            912,280               1,593,000

Exhibit 3: Purchase and operating comparable

Purchase and Operating Comparable900 Stony WalkThe Fowler Building
Actual or Projected Occupancy95%95%
Average Monthly Rents per unit26.1210.5
RE Taxes and Op Exp/Unit or SF84
Other Operating Exp/Gross Rev36.44%18.10%
Other Operating Exp/Unit or SF5.713
Real Estate Taxes/Gross Revenue12%10%
Price/Unit or Price/Rentable SF224204

Exhibit 4: Break-even Analysis

Break-even Analysis900 Stony WalkThe Fowler Building
Debt Service Coverage Ratio (DSCR)0.040.06
Loan to Value Ratio (LTV)82%76%
Break-even Occupancy81.667%69.545%
Added Margin13.33%25.45%
Current or Projected Occupancy95%95%

Exhibit 5: Analysis

Financial Analysis900 Stony WalkThe Fowler Building
Required Equity          7,000,000               6,500,000
Simple Return Measure
Capitalization Rate Purchase3.09%4.45%
Capitalization Rate Sale3.44%4.79%
Cash on Cash Return (1st year)8.60%22.99%
Capital Value Increment13%25%
Pre-tax investment multiple1.764.80
Discounted Return Measure
12% NPV$4,565,127$10,231,411

Exhibit 6: Percentage of total benefits

Percent of total benefits900 Stony WalkThe Fowler Building
Before Tax Cash flows62.75%82.68%
Tax Benefits-15.10%-11.71%
Future Value47.65%70.97%

Exhibit 7: Breakdown of Futures

Breakdown of Futures900 Stony WalkThe Fowler Building
Total net cash from sale        11,256,410             17,323,077
20% capital gain tax on increased         (1,230,769)              (3,230,769)
25% tax on depreciation           (512,821)              (1,346,154)
Increase in sales price          2,000,000               7,000,000
Recapture of mortgage amortization          4,000,000               8,400,000
Return of initial cash          7,000,000               6,500,000


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