Busse Place Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Lease rates, terms, Presentation and Negotiation:

The following lease rates and terms should be offered to each potential client:

Northwest trust company: The area required by the firm was 13,000 square feet. By taking into account the rate offered from the competitors, which was one to two dollars below the rate of $26 per square foot offered in the first proposal, so in order to win the bid, the rate should be $23 per square foot.

The tenant improvement of $28 per square foot should be offered along with six months period free from rent

Meineke and Bock: The area required by this organization was 8,000 square feet, along with that it requires good parking, amenities, layout, design and location of the building. The rate offered should be $24 per square foot and in addition to that, the tenant improvement of$29 per square foot should be provided with six months of free rent. There should be no charge for the reinforcement of library slab.

Riggs Executive Search Group: The area required by the firm was 3,000 square feet. The rate offered should be $25 per square foot and the tenant improvement of $26 per square feet should be provided with six months period free from rent

Financial Implication of Lease proposals and their feasibility in the light of current market situation:

(Please refer to Appendices for the Financial Implication of the Lease Proposal)

As the calculations were analyzed, it could be seen that they were realistic relative to the current market situation because the vacancy rate was higher and the absorption rate for the rentable properties were getting lower due to which there was less cash flow generated from the rentable properties. However, it was expected that the convention centre would be developed soon in Schaumburg market along with that the newly elected government promised to deliver a package that would bring a boost in the economy, as a result of that, the demand for the building might rise however, making optimistic estimates in such an uncertain climate would not be a wise thing.

Finance the Deficit, Restructure the loan or default:

According to the calculations in Appendices, it could be analyzed that financing the deficit would not be an appropriate option as there was no expectation for the improvement in the performance of the building and so the last resort would be to get the loan restructured.

The loan restructured terms should include the payment of $400,000 or less that should be made for both the repayment and interest cost as it would lead to profit. The interest rate should be lowered up to 3% or 4%. Similarly, the term of the loan should be extended up to 10 years and along with that 20% of equity ownership relating to building should be given to the bank in compensation for lowering the payment and extending the life of the CMBS Loan.

Pros and Cons using CMBS loan vs Portfolio loan:

CMBS was a loan that was originated by the bank however; it was sold to some sort of investment trust, which got it rated by credit rating agencies, divides into tranches with different risk profiles, income and credit rating and then sold it afterwards to investors.

On the other hand, Portfolio loans were those that were originated by banks and were not sold as they remained on the balance sheet as receivable.

The pros and cons of using Portfolio loan was as follows:

Pros	Cons
They were easier to arrange.	These types of loan facilities do not allow prepayments without any penalty charges.
	They impose strict covenants’ such as LTV value of 80%.
	They were not easily restructured due to the effect of bankruptcy on the one party.

The pros and pros using Commercial Mortgage Backed Securities were as follows:

Pros	Cons
These loans could provide the option for prepayment without any penalty.	Risk of early redemption, which could not accurately determine the yield and duration.
The lower interest rate could be offered.	They were difficult to arrange.
They could be easily restructured as the trust tries to avoid its adverse effect on different parties.
The loan could be made for huge amounts and even without any collateral.
They could provide higher amount of loan with less covenant restrictions.
Loan origination and other fees could be avoided, which means it’s cheaper to borrow in this category.