Graybar Syndications Harvard Case Solution & Analysis

Question # 1

Factors to consider

There are several factors considered when analyzing the rental income from the property which include:

Rental income consistency

The rental income consistency has to be assessed for the tenant, who is present today might shift to another location as contracts with the tenant are important. The lease of the Graybar is from 1958 and will expire on 1977; the lease term is for 19 years with the option to renew the lease in 1977 till 2030. The contract policies with tenant are very important because if the tenants leave the rented space and the space is vacant, then the budgeted income will never be achieved, therefore, Webb & Knapp must drive policies that require the tenants to give appropriate notice period and the in case the notice period could not be provided, a payment to compensate would be required. Once the tenant has left or is serving the notice period, Webb & Knapp must effectively search for a new replacement that is ready to pay the rent similar or more than the rent paid by the previous tenant.

Security Deposit

Security deposit or deposit should be received by every new tenant based on their rents. This will help the investors in two ways; first of all the tenant in case of a default would still be able to pay the rent and furthermore, after he has left the property any damages incurred to the property during his occupancy period would be recovered and the remainder would be paid to the tenant. The security deposit or the advances from the tenants would ensure the income consistency as well because if the tenant leaves the property without informing Webb and Knapp, then he would have sufficient amount of deposit to recover for the lost rent.

Occupancy rate

Graybar syndication has a very good occupancy rate in the past ten years. The occupancy rate was never below 98.9 % and the maximum it reached was 99.9 %. This indicates that the demand of the property was enormously high. The factors that have made it in such high demand might include proper maintenance, idle location for the business, appropriate gas and electricity facility, fair rents and within reach of the necessities of life. Webb and Knapp, the sub-lessor could use the occupancy rate as the critical factor in analyzing if the tenants are satisfied or not and can make appropriate decisions based on it.

Age of the structure

The Graybar Building was built in 1927 and was one of the largest office structures ever completed. As in 1958 the structure is already thirty-one years old, moving further as the structure get older the tenants would be focus on shifting to a newer structure and as a result lower tenants would be present leading to a decline in the occupancy rate and in order to maintain the occupancy rate Webb and Knapp would be required to decrease the rentals. The impact of the decline could reliably estimate with the passage of time when the information regarding the new building constructions would be available. Continuously updating the building might not be a feasible solution as the regular work would disturb the work of the tenants.

Graybar Syndications Case Solution

Question # 2

Participants

There are four major participants in Graybar’s building the New York Central, one the four participants is the owner and the lessor of the land on which the structure has been built. The Metropolitan life is the lessee of the land and the owner and lessor of the building. The building has been leased to the Associates, which is the partnership comprising of Lawrence A. Wien and William F. Purcell. The leasehold lessor, the Associates have then subleased the structure to Webb and Knapp........................

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