Alexander Plaza Case Harvard Case Solution & Analysis

Alexander Plaza Case Study Solution

Abstract

The Alexander Plaza case shows that the real estate economy is facing much problems due to increase in home supplies and decrease in customer demand. The Medcem Company has recently purchased three buildings with remarkable locations and other facilities nearby. Moreover, the infrastructure of these buildings are also very beautiful and attractive.

Defentac Company wanted to make a 10-year term lease with rent of $12 million for one of the three buildings. This deal is the biggest deal received by the Medcem Company and since the decline in the real estate market, company does not want to lose this deal. On the other hand, the Defentac Company has lots of other options that can be used.

Much negotiations had been made to the Defentac Company by Medcem in order to work out on this deal. However, the letter of intent presented by the tenant, Defentac Company, demanded much more flexibility from the company in terms of infra-structure, demand of increasing rooms and many other facilities. These deals could not be fulfilled by the landlord in limited improvement budget set by the company.

In addition, the improvements required by the company would also impact the company’s reputation, other buildings and upcoming customers of the company. Therefore, the company wants to identify the important clauses and secondary important clauses, which could be presented in front of the tenant and could not be fulfilled by the landlord.

This report has described the company’s background, scenario faced by the company and the tenant’s description. Moreover, under the head of prompt 1 and prompt 2, most important and secondary most important clauses that have been appealed to landlord company have been discussed from both tenant’s and landlord’s perspective.

Introduction

Medcem is a real estate advisory firm. The firm has recently acquired three buildings for $12.7 billion, $17.4 billion and $17.8 billion from different other firms. All three buildings have cost $40 million each for development. These buildings comprise of 500,000 square feet with a common surface. The facility for underground parking is for 1737 automobiles. The complex of three buildings is called Alexander Plaza.

The location of building is remarkable as it has immediate access to Dulles Airport. Moreover, each of the building has a multi colored marble atrium lobby with large beautiful hanging paintings and sculptures. In addition, there are restaurants, a day care center, a bank and a dry cleaner nearby.

Defentac Inc. had occupied 52,586 rentable square feet for the largest and remaining vacancy on the Alexander plaza. The tenant is for 10-year term in lease that would generate aggregate rent of $12 million. On the other hand, the economy is facing depression, so this would be the largest leasing deal of the year.

The leasing market has been experiencing a huge supply by real estate companies, as there was an increase in constructions but the tenants’ demands were decreasing. However, it was anticipated that these crises would decline. The vacancy rates of different companies were much higher than their basic inventories. However, these rates were falling due to no increase in real estate supplies.

The costs for different classes for 5 years were as follows:

  1. Class “A’” space was rented for $23 per square feet along with tenant’s improvements of $25 per square feet.
  2. Class “B’ was renting for $16.5 per square feet with two-month advance rent along with $10-15 for tenant’s improvement per square feet.

These rental rates include full service such as repair, maintenance, utilities, insurance and real estate taxes. The increase in services was showing that there would be increase in rental rate.

Description of tenant

The tenant who would rent Medcem would be Defentac Inc. which is a high tech company and ready for growth. The net worth of the company was calculated for $3.8 million. The Defentac Company found Alexander Plaza as the right combination of price, size, expansion facility, location, parking size, and access to other things. As this was the biggest deal of the year, Medcem Company was also excited for the deal. Moreover, Medcem holds better reputation in the industry rather than individual property owners.

An improvement plan was proposed by the tenant which is costly for the company. A usable area of 23,562 square feet was dedicated to the tenant company with supporting staff and corridors. However, improvement requirements of the tenant company were increasing which could not be completed in a limited budget set for tenant’s improvements. Moreover, more walls, windows, lighting fixtures and improved infra-structure were required by the tenant which could not be done in the negotiated rent.

A letter of intent was designed by both the parties under which both the parties have listed their terms and conditions. As the economy is facing decline in vacancy rates and decrease in real state demands, Medcem company does not wanted to lose its biggest customer of the year. On the other hand, tenant company wants more flexible terms at the landlord’s expense. Moreover, other than Alexander, there were many opportunities for tenant company...................

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