JKJ Pension Fund Case Study Solution
Riverbank Center Office Building
The next real estate property of the corporation is Riverbank Center Office building, which is a 13- floor; 161618 ft 2 office building that is connected to the 28-story Riverbank Center Hotel. It consists of 3 occupants that include Am South that expires in 1997, Ambrecht Jackson also expires in 1997 whereas Merrill Lynch that expires in 1999.
Moreover, the level of functioning and monetary risk is less as it is the leading office building and the capitalization rate for office building isfluctuating between 8.5-10%. Whereas the current net cash flows for the Riverbank Center Office building are optimistic, representing the promising results for the forth coming development and earnings for the investment.
Sarah Griffin should hold this option as the market value $ 6,065,005 of Riverbank Center Office building is less as equated to its investment of $ 12,400,000.
Empire Hotel Rochester New York
The empire hotel is a seven floor building that contains the 364 guest accommodations and is situated in the core of the downtown Rochester. In addition to this, it has two food and drink openings as well as the hotel has over 16,000 ft 2 space that is available for the banquets.
Similarly,the cash flows are positive suggesting the satisfactory consequences for the future growth and earnings for the investment. While the level of risk is less as the cash flows are presenting a more optimistic trend and the capitalization rate for hotels is ranging between 9.5-12%.
Sarah Griffin should hold this option as the market value $ 10,341,730 of Empire Hotel is less as compared to the investment of $ 14,320,000.
Maplewood Apartments
The Maplewood Apartments is a housing project of the firmit comprises of 304 leasing units that are housed in 19 two-story buildings. An average apartment contains the space of 866 square feet and it requires some capital improvements in order to update its reputation as well as to remain competitive in the market.
Besides, the cash flows for the Maplewood Apartments are constructive, demonstrating the satisfactory results for the future growth and earnings for the investment. The capitalization percentage for the office and industrial properties is ranging between 8.5-10%, while the level of risk is reasonable.
Sarah Griffin should sell this option with the market value of 12,160,000 as Maplewood Apartments are the ancient apartments in the city and clienteles are mostly fascinated towards recently reconditioned and equipped apartments in the area. Consequently, it is very important to sell it immediately.
Midtown Mall
The Midtown Mall is a well-known local shopping center of the company,having a capacity of 920,000 ft 2 that includes three anchor stores and 150 shops. The present and future cash flows for the Midtown Mall are also optimistic, representing the hopeful outcomes for the future growth and earnings for the investment. The capitalization rate for the office and industrial properties ranges between 8.5-10%, while the level of risk is low.
Sarah Griffin should hold this option as the market value $ 52,406,588 of undeveloped sites is less as compared to the investment of $ 60,000,000.
Alpha Center
This portfolio of the company is the possession of Alpha Center, which is a two floor building containing 92,738 square feet area that includes 73,383 ft 2 rentable of offices along with 6,372 ft 2 net rentable of storage space.
Furthermore, the cash flows for this option are positively anticipated by the administration of JKJ,demonstrating the advantageous results for the future development and earnings for the investment. The capitalization rate for the office and industrial properties is ranging between 8.5-10%, while the level of risk is low.
Sarah Griffin should trade this option as the market value is $ 10,438,497 of Alpha Center and it is better than the investment of $965,561.
Path mark Supermarket
The Path mark Super market consists of 2.3 acre site that contains a 21,632 ft 2 supermarket and it is situated on the Main Street. The current cash flows for this choice are positive, representing the auspicious results for the future growth and earnings for the investment. The capitalization rate for the office and industrial properties is ranging between 8.5-10%, while the level of risk is adequate due to the highly competitive market situation.
Sarah Griffin should sell this option as the market value $ 1,198,224 of Path mark Supermarket is greater than the investment $900,000.
Flamingo Village
Last real estate portfolio of the company is Flamingo Village which is a multifamily rental project in the North Miami Florida and finalized in January 1990.In addition to this, cash flows for the last option are also satisfactory, suggesting the favorable results for the future growth and earnings for the investment. The capitalization rate for the office and industrial properties range between 8.5-10%, while the level of risk is reasonable due to the swelling size of the market.
Sarah Griffin should sell this option as the market value $12,205,800 of Flamingo Village is more as compared to this the investment $ 8,900,000.
Question 4: Reservation Price
The reservation price that Griffin will accept in order to sell the properties is when the value of the property will be equal to or greater than the investment. The company will hold all the properties which has a lower market value equated to the invested amount.
In the following table it is stated that which properties which properties the company will sell as they are equal to or higher than the investments made.
Recommendations:
On the basis of the above findings and evaluations, we can clearly consider the Return on Investment (ROI) to decide our future investments, Empire Hotel has the highest ROI amongst the properties that the company is planning to hold. If we invest more in this project, there are chances that the property will pay off a good amount of returns, and when it will reach its maturity and the company will cover its costs they can sell it to invest in another property with a higher ROI. Apart from reinvesting and improving its current properties, the company should seek properties to invest its capital and generate good cash inflows. She should also consider all the demographics before investing in a property. Griffin has a very important decision to make, as all the future investments and current properties are at her disposal. She should take an advice from multiple estate advisors before making a decision...........
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