A 72-unit apartment building in Riverside, California was acquired for $36 million at a 7.0% cap rate with a 72% LTV fixed rate constant payment first mortgage loan at a 6.0% annual interest rate that was fully amortizing over 30 years. For tax depreciation purposes, the building improvements were determined to be 87% of the purchase price. If the building’s owner had a combined federal and state marginal income tax rate of 55%, what was the approximate first year after tax ROE? a. 6.5% b. 7.7% c. 7.0% d. 7.4%

A 72-unit apartment building in Riverside, California was acquired for $36 million at a 7.0% cap rate with a 72% LTV fixed rate constant payment first mortgage loan at a 6.0% annual interest rate that was fully amortizing over 30 years. For tax depreciation purposes, the building improvements were determined to be 87% of the purchase price. If the building’s owner had a combined federal and state marginal income tax rate of 55%, what was the approximate first year after tax ROE? a. 6.5% b. 7.7% c. 7.0% d. 7.4%