Problem Diagnosis
Mr. Angus Cartwright is a financial planner and he needs to make recommendations for real estate property investments for his long time family clients, which are the DeRights. Judy and John DeRight have come to Angus at different stages of their lives to seek advice and their interest for diversifying their investment portfolio so that they can also make real estate investments a part of their portfolio.
There are four properties, which have been identified in the case by Angus Cartwright for his two clients, which arecousins. He believes that all four of the properties are a perfect match for the clients but he will have to narrow them down to one property for each of the client. Therefore, we need to recommend which cousin should invest in which property based on the detailed financial analysis of each of the four properties and the additional modifications, which have been described by Anders and Stillwell in the case. The investor’s profile and then the investments will have to be analyzed before a final recommendation is made to Angus Cartwright.
Case Analysis
First, we have performed a SWOT analysis for each of the four properties, whichare shown in the table below one by one:
Alison Green
| Strengths:
• Stable market • Building only 3 years old • Stabilized occupancy • Residential space |
Weaknesses:
• Tax increase • The clients would fully use the tax losses. |
| Opportunities:
• No Waiting time for the building to be built. • The risk of drain would be low due to lower vacancy rate. |
Threats:
• The market might not be stable in the coming years. |
Angus Cartwright Case Memorandum Harvard Case Solution & Analysis
900 Stoney Walk
| Strengths:
• Currently leased up at 97% occupancy rate. • It has highest IRR of after Alison Green property. • Highest tax benefits. |
Weaknesses:
• The cap rate is high. • Lowest gain on sale. • High taxes. • Higher percentage of debt in financing. |
| Opportunities:
• High appreciation value in later years. • High resale value. |
Threats:
• Lower value might be lower than expected. • Default on debt payment. |
Ivy Terrace
| Strengths:
• Guaranteed return • Greatest increase in cap rate from the purchase to sale price. • Second highest after tax cash flow. • Developer guarantee of 93% occupancy. |
Weaknesses:
• Lowest net cash from sale. • Lowest capital gains. • Highest depreciation. • Lowest amortization and reserve. |
| Opportunities:
• The risk of drain would be low due to promised occupancy rate. |
Threats:
• Currently under construction • High number of properties entering market. • Risk of loss of value in future years. |
The Fowler Building
| Strengths:
• Guaranteed return • Highest breakeven occupancy • Highest IRR. • Highest Profitability index. • Highest tax benefits. |
Weaknesses:
• Lowest debt cover ratio. • Lowest cap rate. • Lowest taxable income per year. • Lowest after tax cash flow. |
| Opportunities:
• Under market rents with appreciation of 4% escalation |
Threats:
• Currently under construction |
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