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down that business when interest rates increased in 1980
because EPIC's management believed that the company could
purchase properties that would appreciate and could be sold
for a profit when interest rates declined.
At this time, EPIC's management undertook to revise
certain characteristics of the limited partnerships that
were syndicated. EPIC's management had realized that if an
income partnership held properties after the developer's
lease expired, the partnership would realize cash deficits,
and it had no mechanism to fund such deficits. EPIC's
management wanted greater flexibility in the period of time
that a partnership could hold its properties. In order to
permit a longer holding period, the partnerships would have
to lease properties to individual tenants, and, as a
result, the rental stream would decrease substantially
because lease rates paid by individual tenants are much
lower than the commercial rates paid by developers.
However, EPIC found that developers would discount the
price of the properties by an amount roughly equivalent
to the present value of the difference in rental rates.
EPIC referred to this discount as the rental deficit
contribution.
Because of the longer holding period, EPIC's
management also wanted to increase the loan-to-value ratio
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