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South Park Iv

In: Business and Management

Submitted By colcris
Words 587
Pages 3
1. Is this a good property for Laflin to acquire?
The property can be set up to produce positive returns for the investors. So in essence, yes it’s a good deal for them. However, a good deal for the investors also depends on what they’re expectations for financial returns on the property is and what they consider to acceptable returns. If the property yields 5% return but the investors minimum expectation is 10%, then the deal would not be considered good although it provides a positive return.

2. What assumptions has Laflin made in creating his setup for SouthPark IV? What changes, if any, would you make to his setup? What is your projected return for SouthPark IV?
There are a number of assumptions made by Lafflin in creating his setup for SouthPark IV. For starters, he uses a 5% vacancy rate which compared the list of provided competitor occupancy and rental rates is much lower. I would adjust the occupancy rate in the setup to be more closely aligned with that of building 9 since it’s the most comparable in size. That would mean using a vacancy rate of about 47%. Secondly, he also assumes rental income rates that appear to be higher than market rates. Lafflin should lower the rates to reflect current markets rates and create a more realistic expectation. Third, I would also adjust assumptions around management fee and structural reserves. In both cases, they remain flat at 4% and $15k respectively, when it’s likely that the fee will change over time and additional reserves could be needed.
Given the drastic changes in assumptions, vacancy rate in particular, projected return for the deal is actually negative and would likely not be as attractive a deal as the original optimistic projections suggested. However, this could potentially be mitigated by negotiating the building purchase price at the onset of the deal to a much lower figure.

3. What

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