Office Space, A Company’s Frontier Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Office Space, A Company’s Frontier Case Solution

Economic benefits: By building its own space;the company can use this capital as collateral to expand its business, resolve the real estate issues and even fund its pensions. The company will also receive tax breaks and annual depreciation deductions. The key is to choose a contractor, which will also provide an affordable price to the company. The company makes a full assessment and always makes a reasonable estimate based on the needs.

Take advantage of the market: Currently, the cost of purchasing the real estate is very low. Today’s customer market and will not work for long. Using the market before could provide a chance to the company to recover.

While this is an important work, the company can have a complete control over the business location and have the flexibility to set it up to become its own. Of course, if there is no reliable contractor; it wouldn’t be advisable to consider construction.

Disadvantages of Ownership

Time limit - remember if the company buys for at least five years. Although the value of commercial real estate has historically appreciated; the costs of acquisition and sales may offset or eliminate the gains from appreciation, during the short-term ownership period.

Stiffness - Own installations are generally not suitable for building an expansion or construction.

Initial investment - most commercial creditor charge 20 to 30 percent of the costs of the acquired business, to complete the transaction. This fee requirement limits the resources that could be used to develop the user’s businesses.

Management - Managing the commercial real estate can absorb labor and force the owners to focus on overcoming the management issues, such as compliance, health and safety, business management and other issues that are not related to the main activity of the user.

Financing - In times of recession or economic downturn; the source and availability of debt may be limited, and increasing interest rates could make financing difficult or impossible.

Financial Liability - Although equity are available; long-term debt financing commitments typically include 20 to 30 years of repayment and possible loan terms, and fines must be paid if the loan is paid very late.

Risks - The property involves many risks, including: internal and external obsolescence, market risk, financing risk and unforeseen maintenance and capital needs.

Advantages of Leasing

Location - In some markets; more properties can be rented than purchased, so businesses offer more options. Leasing allows the users to book seats in places they cannot afford.

Flexibility leasing offers more flexibility to users who may need contracts, expansions, or re-locations in the future.

Available finance leases usually require less money than purchases. As a result, companies can have more capital to invest in their products / services or to relocate to other locations.

Financial Source - Leasing can be seen as a source of funding that can benefit many profitable small businesses who may have difficulties in obtaining the traditional financing.

Cost stability - the long-term cost of rents is usually easy to estimate. Tenants can generally avoid unforeseen investment costs, such as: replacing mechanical systems, structural repairs, or replacing roofs / parking lots.

Tax Deductions - Unlike home ownership; rent is fully deductible, including the portion of the rent that is tied to the value of the land.

The Focus-Lease space allows the users to focus on their core business, without distracting them from the property management.

Disadvantages of Leasing

Cost - For businesses with good income; capital can be used at any time and the company would be able to take advantage of the property tax breaks, and leasing is usually the more expensive option.

Loss of a lease means that tenants cannot benefit from the value of the property.

Contractual Penalties - If the leased property is outdated or the occupying business is not profitable; the tenant would still have to pay the rent or get fined for breaching the contract.

Loss of the Residual Value - Many leases state that any development by the lessee becomes the property of the person who leases, at the end of the lease, or must be removed at the lessee’s expense.

Control Rights - When renting, users have almost no control over other tenants in the building, rent increases and other factors that can negatively impact the business.............

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Office Space, A Company’s Frontier Harvard Case Solution & Analysis