REAL ESTATE FINAL CASE STUDY Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

REAL ESTATE FINAL CASE STUDY Solution

Investment Overview

Property Details:

The property is 1674 Monroe, i.e. a 7 unit apartment building, located in the North Dakota. The property has an attraction point that it is located in the City Park Neighborhood, which is also a highly desirable place across the street from the Denver’s biggest park. The property is considered an irreplaceable assets and the owners of the property are putting continuous efforts in maintaining and updating the property’s original charm and beauty.

Attraction Points:

The property provides different benefits to the residents, which are the centre of attraction points for the property. First of all, the property has 7 large apartments, which are worth living for because of extra benefits. The apartments are constructed with vintage features including fireplaces, hardwood floor and tile work. In addition, the property is located at an amazing location, just few steps away from the City Park. The property also includes large parking space and lots with mature landscaping, surrounding the entire property. Lastly, the location is very attractive, i.e. it involves an urban lifestyle with nearby surrounding including the dining, entertainment and nightlife amusement places.

Suggested Strategy:

On the basis of the detailed analysis, the property is marked with a “buy” recommendation based on different factors, including the property construction, location, neighborhood attractiveness, vintage features, parking spaces and mesmerizing lots. Not only this, the property has a high demand among investors as compared to the neighborhood, and the investors are willing to pay premiums to get the ownership of 1674 Monroe.

Assessing the Income Stream & Stability

In order to assess the feasibility of investment in 1674 Monroe Property, financial analysis has been put into consideration. Appendix 3 highlights the current and the projected financials ofthe property. The current property rentals for 1 bedroom, 2 bedroom and 3 bedroom apartments are lower as compared to the rental in the pro-forma statement. It is because the investors are willing to pay premium for the property and the property has a unique location with strong vintage facilities, so it is expected that in future the rent of the property will grow. The other income from parking, laundry and RUBS is also determined and expected to increase in accordance with the rentals. The rental income and the expenses are expected to grow at 3% and 2%, respectively for the period of ten years. The net operating income generated by the property over the next 10 years, shows an increase in the property’s profitability. The cash flows and income streams are stable and lucrative.

Cash Flow, IRR, Sensitivity & Risk Analysis

The unlevered free cash flows of the property The unlevered free cash flows are used to determine the projects IRR are shown in Appendix 3, which are positive and increasing over the ten years. The offer price of the property is projected as$25000,000, whereas the IRR of the property is calculated as 8.84%. The incorporation of loan and its related terms including an interest rate of 3.5%, 360 months maturity operas and 65% LTV, also resulted in equity levered IRR of 15.3%.

In addition, the sensitivity analysis has been performed, whereby the property rentals are changed by +5%/-5%. These both cases are represented in Appendix 4, which shows that if the property rentals increase by 5%, it would generate an IRR of 9.69%, and if the property rentals decrease by 5%; it would still generate an IRR of 8%. Though, there is an inherent risk of rental going down due to economic conditioned, but the property is still expected to charge higher than the neighborhoods properties, because of its location, facilities and beauty.

Comparative Analysis

The comparative analysis shows that the cap rate of 1674 Monroe is 4.7%, which is higher than the other comparative properties (See Appendix 5). In addition, the property’s value per square feet of $303 is somewhat similar to other neighborhood place but its cap rate is higher, as it is a preferred location as compared other neighborhood properties......................