Business as Unusual: Managing Commercial Property in Distress Case Study Solution
As the partnership of Clarke would most probably hold the property until the end of the calendar year 201; the limited partners would tend to obtain the positive cash flows following the proposed anchor releasing strategy.
The cash flows are calculated for the period of the 5 years or it is assumed that the property would be held by Clarke’s limited partner until year 2014. The limited partnership should be maintained due to the fact that the cash flows are positive, and the project would be productive in terms of massive profit margins and value. Also, it is suitable for Clarke to pursue his partnership with limited partner since the project would yield strong returns. Additionally, Clarke needs to take an additional amount of $8400000 from his partners with the intent of fulfilling the debt obligations or making the mortgage payments. Additionally, he should sell this property due to the profit potential, valuable estimations, positive net present value and the strong investment yield. Also, if he sells the property, he would have to bear the tax consequences as well.
The consequences of the debt on the property in real estate is evitable. The amount of loan is supposed to be considered as an income due to the fact that there is no longer an obligation to repay the lender. In case of selling property, there is a likelihood that the consequences of tax would occur.
In addition to this, the constraint stem from the existing debt on the property includes financial risk of the project, repayment penalty, and there is a need to provide an extensive proof one worth and liquidity including financial statement, tax returns and more. It is recommended that Clarke should reduce its debt financing for the property due to the increased or accrual mortgage payments. Also, it is to notify and recommended to Clarke that He should also reduce the size of the real estate funds.
Significantly, the overall leasing strategy for the Tulaberry Plaza is that Clark should pursue his partnership with the limited partners and provide them enough benefits in terms of return on investment. Also, the continuation of partnership would be feasible for him due to the fact that the project would most likely generate enough cash flows over the period of time. In addition, the size of the debt financing should be reduced for reducing the burden of the mortgage payments.In addition to this, Clark should not sell Tulaberry Plaza property because Clark would have to bear the tax consequences if he does.
Conclusion
To sum up, it is to conclude that Tulaberry Plaza, which is one of the property hold by general partner of the real estate private equity company got encountered with the dilemma in year 2010. Tulaberry Plaza is considered one of the flourishing real estate shopping center that is situated outside Orlando, Florida. The serious economic decline and the fiscal disaster have compelled the anchor tenant of Tulaberry Plaza into insolvency and have also weakened the other renters of the plaza.
It is identified and determined that Clarke should retain his partnership with limited partners and satisfy them. The valuation of the project shows positive Net Present Value and positive cash flows, which shows that the project would reap more profits in terms of rental income and others. Also, it is to identify that the Clarke should not sell this property and retain it, and enjoy strong yields. In addition, Clarke should reduce the size of the debt financing for the purpose of reducing the burden of the mortgage payments over time..........
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