8 SPRUCE STREET Harvard Case Solution & Analysis

Question No. 1: Examine the challenges of managing a ground up residential development, particularly an ambitious project with a world-renowned architect.

Answer:

The case is about the company which was engaged in the business of architecture and now tried to build the 867 feet, 76-story residential tower named as Beekman Tower in the New York City, which was designed and planned by renowned architect named Frank Gehry. The main feature of the building was that it was located at the ideal location in the city with the access to nine different subway lines.

The Beekman towers offered around 903 residential units, unobstructed 360 degree panoramic views and with a height of almost 100 feet, luxury amenities, 6-story podium that comprised of a new public school as well as an ambulatory care center for New York Downtown Hospital.

An exclusive challenge of axial shortening had to be met. Based on the studies and expectations, the values were specified and quantified for manufacturing the columns of the building to mitigate and minimize the effect of different axial shortage between the core walls and the columns of the building not only for the construction sequencing stages but also for the final construction condition. Soon after gaining the rights to develop the site, Gilmartin and FCR faced the challenge of opposition from its neighborhood.

For the transferring of title of the site, the agreement between the two parties had to be amended because the settlement clause was set to be expired soon and the neighbors of the area filed a suit in the court of law against the FCR, NYC and NYUDH, in which they put the blame over defendants about the non-compliance of the Land Disposition Agreement (LDA).

The management of FCR believed that this could end up in a disastrous way, even before a single shovel was in the ground. So they have decided to step in and negotiate the matter with the accused parties and they were agreed on the favorable price of $87.75 million and with a condition of a 70 foot setback on the west side of the property. This requirement needed to be fulfilled in order to not to continue the suit.

The FCR team and Gilmartin were concerned about the long term cash flows generated from the residential rentals as that project was their first experience of the residential development. The teams were concerned about the mark-to-market nature of constant and steady residential rentals to become long term holders of the real estate business.

Gilmartin and the FCR team were also very concerned about the success of their residential development project and their partnership with the World’s best and most famous architecture, Frank Gehry. They were concerned that how could the vision of the company and the masterful architectural vision of the Frank Gehry be matched.

Some of the early challenges include the withdrawal of the Pace University from the 8 Spruce Street project because of that the project was faced with the loss of Liberty bonds, which was the biggest way of financing. This created the problem of finance and the management believed that the project might end up in danger.

After the withdrawal of Pace University, the whole focus turned towards the completely residential project and decided to add condos in the upper floors of the tower. But they were also concerned about the economic equation surrounding the city after the incident of 9-11.

The plan to change the focus towards the full residential tower needs to be changed in order to bring a change in the whole design of the tower, especially the interior design of the tower. Which means the redesign was compulsory and the fees for the architecture and the engineering staff would go above the budgeted expenses and that puts the question mark over the feasibility of the project.

Question No. 2: Shouldn’t FCR have expected the choice they were faced with in March 2009? Wasn’t it obvious? Did FCR expect the market to stay this hot even after they broke ground in early 2008? Bear Sterns failed the same month that FCR considered topping off at 38 stories? Shouldn’t they have seen the beginning of the decline? Consider the answer to this while assessing rental and condo market in New York City and Lower Manhattan through 2008.

Answer:

The Superstructure construction of the tower started in April 2008. At the time of the commencement, the management of the FCR has decided to secure the cost around 85% of the total trades purchased. But the major collapse of 2008 in the financial markets has led the decline in the real estate market across the New York, the hub of real estate industry............................

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