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Problem 23-3

A commercial real estate investment fund must report its quarterly investment performance to investors. A summary of its (1) beginning and end-of-quarter assets and equity and (2) cash inflows and outflows during the quarter are as follows:

Beginning of Quarter		During Quarter
$59 million	Cash	$10 million	NOI from operations
$509 million	Market value of props	$2 million	Paid management fees
$29 million	Other Investments	$25 million	Distributions to investors
$318 million	Fund debt	$209 million	Investor contributions
		$184 million	Property acquisitions
		$34	Property dispositions

Other investments will earn 4% interest (1% per quarter) and property debt will be at a 6% rate (1.5% per quarter).

The properties were appraised at the end of the quarter for $664 million.

Assume any interest on short-term investments is offset by interest paid on short-term debt.

Required:

a. What would be the beginning equity value?

b. What would be the ending equity value (MVEE)?

c. Assuming that all cash flows from operations, equity contributions, acquisitions, and distributions occurred at the end of the quarter, what would be the quarterly return (IRR)?

d. Assume that all cash distributions to investors occurred equally in 30-day intervals during the quarter. (Investor contributions still occur at the end of the quarter.) What would be an approximation to the IRR using the Modified Dietz approach?

e. Assume that all cash distributions to investors occurred equally in 30-day intervals during the quarter. What would the return be before fees? (Investor contributions still occur at the end of the quarter.)

f. Assume that all cash distributions to investors occurred equally in 30-day intervals during the quarter. What would be return at the property level? (Investor contributions still occur at the end of the quarter.)

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