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Stargaze Properties is evaluating the purchase of two apartment complexes built in 1994. Failure to maintain the properties in recent years has prevented increases in rents for the last four years, with occupancy rates falling below 80 percent. Stargaze plans to purchase both complexes at a combined cost of $30 million.

The complexes will ultimately be soldto investors as limited partnership units. Prior to resale, both complexes will be renovated, which should increase occupancy rates to 95 percent so that rents can be increased to market levels. The proposed renovation will take one year (during which time both complexes must be vacant) and require an immediate investment of $10 million. The complex having the more desirable location can be sold at the end of one year for $28 million. The second complex will be sold for $18 million at the end of three years, with expected rentals during year 2 and year 3 of $3 million. Assuming there are no taxes on limited partnership investments in real estateand that cash flows received at date 1 and date 2 can be reinvested at 2.5 percent, determine the reinvested rate of return for the limited partnership and explain why the reinvested return is greater or less than the internal rate of return for the project.