Angus Cartwright Case Study

In September 2003, John DeRight and Judy DeRight, both cousins, decided that they both wanted to invest in real estate. The cousins felt that real estate would allow them the “benefits of diversification, protection from future inflation, and tax advantages.” John, a risk averse person, was a retired businessman and was willing to spend $9 million in this investment. John would rely on stock dividends and other income that totaled approximately $1 million. On the other hand, Judy was a risk tolerant businesswoman who owned her own chemical company and had $16 million of funds available for investment. Judy’s after-tax income came out to be approximately $1.1 million.
The cousins contacted Angus Cartwright III, an investment advisor who showed John and Judy four different properties that had different circumstances. The properties consisted of residential and office buildings and there were properties that were both currently standing and under construction. Cartwright III, like his father, had plenty of experience with the DeRight family, and so he showed John and Judy the four properties.

The first property was Alison Green, a 100-unit apartment in Maryland. It has the highest Net Present Value at $734 and has the lowest breakeven occupancy at 64%. It has the best debt coverage ratio at 2 and highest cash-on-cash at 12%. Based on calculations, 74% of total benefits will be derived from cash flow while 44% of total benefits will come via future value. Despite having the highest after tax cash flow, the cap rate indicates that the value of the building will stay the same; thus signifying no loss of property value. The second property was Stony Walk, a five story 75,000 square foot office building that contained 67,000 square feet of rentable space. It has the second highest break even occupancy at 75.99% and has the highest cap