National Industrial Investors, Inc. - Page 7

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            approximately $2,900.  After its incorporation, NII paid $167,186                          
            to build the Addition.                                                                     
                  Petitioner placed both the Burke Building and the Addition                           
            (the Burke Property) in service on January 1, 1972, the date that                          
            Burke took possession of the Addition.  For the Burke Building,                            
            NII has always used the straightline method of depreciation in                             
            conjunction with a useful life of 28-1/2 years.  For the                                   
            Addition, it has used the 125-percent declining balance method                             
            with a useful life of 30 years.                                                            
                  Within a month after paying for the Addition, on January 31,                         
            1972, petitioner borrowed an additional $202,918.92 against the                            
            Burke Property from TIAA.  Petitioner consolidated this loan and                           
            the previous loan from TIAA into one $500,000 loan (the TIAA                               
            Loan).  Starting on March 1, 1972, the consolidated note required                          
            monthly payments of interest and principal of $4,238.87.  The                              
            interest rate on the consolidated loan was 9-1/8 percent per                               
            annum.                                                                                     
                  The Burke Property also secured other loans in later years.                          
            For example, the property secured a $75,000 loan from a group of                           
            investors (Investor Group Loan) from June 10, 1982, until October                          
            29, 1985.  On September 27, 1985, Owens Financial Group, Inc.,                             
            lent petitioner $85,000 (Owens Loan).  The Owens Loan was                                  
            collateralized by the Burke Property.  Petitioner repaid the                               







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