Broadtree Residential, Incorporation Harvard Case Solution & Analysis

Broadtree Residential, Incorporation Case Study Solution

Research Review:

The commercial market of real estate plays an important role in the entire macroeconomy of any state. (Kishor, 2017) The real estate investment trust serves as an entity receiving revenue by either financing or owning a property for income production. (Stephanie Krewson-Kelly, 2016) REITs has gained popularity in terms of its role as a separate investment vehicle providing investors with the access to the market of real estate despite being the property owner. (Kishor, 2017) In terms of social perspective, a primary requisite – housing of life of a human being highlights its potential in a welfare state. (K, 2016) REITs can be both either a private organization or a publicly owned which is known to be traded on a stock exchange.

However, for an organization to go public is a mammoth decision as it is primarily a process through which securities are offered i.e. sale of stock or bonds of private organization to public. Similarly, the first offering by the organization to sale its securities tends to be referred as IPO – Initial Public Offering. IPOs are mainly the initial public offerings with inclusion of some shares held by the current owners. (PwC, 2011) Additionally, selection of right market is the important decision in the entire process of IPO for listing of the securities of the organization. The best evaluation of IPO process is through conjunction with the investment bank providing assistance to the organization working with salient issues. (Frederick J. Marquardt, 2013) In the United States of America, the ownership of buildings and lands is considered more persistent as compared to other regions throughout the world. Since the establishment of a common feature in the economic profile of the United States, there has been an increased participation in the real estate. Thus, the ownership of land serves a symbol of prosperity and symbol.

Developmental history of RE:

In the eighteenth and nineteenth century, the successful battle and lobby of Americans for legal reforms significantly allowed citizens in order to be landowners. In 1862, the Homestead Act was sanctioned due to rebellious settlers’ mobilization response who were responsible to farm land for their workforce. This led the development fee simple system of the absolute rights of property by a private ownership. The market of real property is known to be exceptionally volatile because of erratic capital flows. With large disparities in the prices of land and frequent speculation of land, there had been establishment of new settlement with sub-division of land and return of bust, boom and speculative climate.

Additionally, the sponsorship of public sector through issuance of bond was central for making successful development and possible pervasive ownership. Similarly, the property’s legal protection transactions, use of land controls pertains to the physical environment, and an increase in the safety of public and subsequent property value growth serving the promotion of participation of mass in the United States’ market of real estate. In the middle of nineteenth century, the railroad tend to be the primary individual and merchandise mover around the United States of America.

As compared to canals which were initially utilized as the railroad functioned as a catalyst in terms of development. The tracks of railroad were possibly laid anywhere such as the land amount directed for potential development for exponential increase. In America, the first leading businesses were large railroad organizations. Considering their services, these businesses were inseparable from the activity of real estate.  Organizations of railroad would either sell land or mortgage some of their holding of bonds bank and buyers for capital growth. (Gumbs, 2001)

While extensive size and lobbying ensured the mutual funds trust survival, trusts of real estate were known to be outlawed for about a period of twenty years in the U.S. after the Great Depression. However, in 1960, recreation of corporate tax by the RIET Act exemption resulted in profitable REIT structure. In 1965, the first trade of REIT was considered to be Continental Mortgage Investors on the Stock Exchange of New York whose market had shown market capitalization growth i.e. about $450 billion by 2011. While, the Wells REIT I was the first non-traded REIT in 1990. Since its creation, the capitalization of market of the entire sector of non-traded REIT had demonstrated growth to over $78 billion. (Rhea, 2013)

Therefore, in recent times, the companies of railroad remains between the state’s largest private landowners. Private ownership of land in the United States and the role of public sector is still considered critical for land valuation and development. (Gumbs, 2001)

Private vs Going Public REITs:

REITs functions under the environment of unique institution that significantly highlights the transactions of going private. The investment funds of real estate are needed for the payment of dividends of minimum 90 percent of their taxable returns. In context to real estate investment, there is an availability of many choices for the investors such as size of building, location, property number and risk strategy but there are primarily two categories private or public.

A direct property purchase by an investor is termed as private investing of real estate or unlisted real estate.  This is also referred as investment of bricks and mortar due to the investment of owner in the physical space.  Access of private real estate to the investors is primarily through the collective investments called as pooled funds. These, pooled funds, are known to be operated through an organization of investment raising money from shareholders for investment in assets group, with stated objectives. Such type of funds tends to be both close-ended and open ended. As closed-ended funds comprise a specified span of life i.e. a period of seven or eight years with expectation of investors to remain in the fund during this duration.

On the other hand, the public real estates are the companies which are known REITs – Real Estate Investment Trust through use of pooled capital of a large investors for purchasing, management, and development of income properties called as listed real estate. These corporations’ shares are traded primarily on major stock exchanges. Value derivation through REITs from income of rent which returns to shareholders in dividends form. Such investing form is known as indirect investing due to the fact that the investor owns a trust or corporation’s share despite directly owning the property. (E. Todd Briddell, 2011)

Pros and Cons of going Public:

Pros:

  • In IPO, long-term and cash capital are achieved through supporting the growth increase in the capital of work, investment in redevelopment or development of existing property, acquisition of new properties, loans and other assets, debt retirement between other objectives.
  • Market valuations for private versus public goes in cycles in different industries, as the public organizations value tends to be more in comparison to private organizations as a result of increased liquidity, availability of information and a value i.e. readily ascertainable. (PwC, 2011)
  • Greater value of shareholder and liquidity could be achieved which can be used for selling their stock in the public market through use of existing stocks for securing personal loans.
  • It mainly enhances the visibility of the organization and its shareholders.
  • A significant increase in the organization’s net worth is through the equity IPO eliminates the need of repayment with permission of additional borrow due to improved ratio of debt-to-equity.

Cons:

  • Going public leads to development of pressure delivered on the promises of the organization resulting in creation of a scenario in which the organization tends to be short-sighted in its bid in order to keep their investors satisfied.
  • Need of additional amount of money for compliance with ongoing regulations requirements as a listed organization requiring high payment to bankers of investment and other expenses.
  • Greater transparency and disclosure of financial results provides competitors with the information regarding their strategies and inner working approaches followed.

Loss of control over organizational workings with need of shareholders’ approval in the process of decision making which might result in hostile takeover. (Dr. Martin Steinbach, 2018)..........

 

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