Holt Lunsford Commercial Harvard Case Solution & Analysis

Course of Action Lunsford Should Recommend to His Client

            Lunsford had been providing real estate services to Staton Tee since 1993 and knows their business very well. However, Staton’s current lease term with Welch Centeris about to expire at the end of 2013 and Staton currently has three options available for acquiring the industrial property for future use. The first option is that it can renew the lease term with the Welch Center for the next 10year term. However, the lease renewal would cost $3.35 per square feet, which will increase due to the inflation of 3%lease rental and would increase every quarter, further, an additional amount $1.15 per square would be required to pay property taxes, insurance, utilities and other maintenance cost. However, the total lease rentals for the 10 yearlease term would be $46.22 per square foot and the total square foot would be 102,718; hence, Stanton will have to pay a total rental of $4,748,055/- for the period of ten years in order to use the Welch Center facility.

            Alternatively, Staton has the option that it can buy the property that it is currently using on lease;meanwhile, the current owner of Welch Center is willing to sell the property for a sum of $4,048,300, which is even lower than the lease rental for the ten year lease term as calculated above. However, since the lease would be paid in installments and over the period of ten years, therefore, it seems to be reasonable that lease rental is higher than the actual selling price of the property. Meanwhile, the fact that the Welch Center’s roof is in not in good condition and would require $4 per square to repair the damaged roof, hence, effectively the cost would be higher than the quoted price of $4,048,300/-. However, in addition to the acquisition cost required by Welch, owner, Staton would also be required to pay a sum of $1,093,044/- as an out of pocket expense for the completion acquisition transaction, hence, the total cost of acquisition would be more than $5 million.

However, the acquisition of Welch Center, would be a onetime investment and Staton will not be required to incur lease rentals after 10 years and however, the maintenance cost, utility, tax and insurance cost will still be payable but this cost will not be a significant cost. The acquisition of Welch Center is a better option than the lease rental renewal option.

Meanwhile, Staton also has the option to construct, build-to-suit property that has the cross-docking capabilities that will enable the Staton to quicken their delivery system. Further, the build-to-suit option will enable Staton to increase the roof height so that more storing facility can be developed per square foot. However, Staton has two options available for the acquisition of build- to-suit facility. Staton can either construct a build-to-suit property that will enable Staton to own the property exactly as per Staton’s warehouse requirements or alternatively it can first find an investor and then built a property using the investors' money, meanwhile, on completion of the construction Staton can get the newly built facility on lease terms from the identified financing for the construction of build-to-suit property.

            However, the total construction cost would be $4,464,900, Staton will have to raise the debt financing using the loans and debtor's expenses. Furthermore, the construction of the new property will enable the Staton to use the additional floor facility that it needs for the expansion of the central office, meanwhile,build-to-suite property will provide the convince of using the specialized truck bay, therefore, the newly constructed property will best suit Staton central office operations and the warehouse facility. However, the construction of build-to-suite facility would require higherfund raising from the available funding resources.

            However, the evaluation of the three alternatives for the acquisition of the property reveals that the each of the options have its own benefits such as the renewal of the lease would not require Staton to raise the financing, meanwhile, the payment of lease would be smaller amounts that will be payable at the end of each year. Meanwhile, the renewal of the lease would not provide any additional space that could facilitate the warehouse and the office building isstill limited to the first floor area only. In addition to this, alternate option is to purchase the Welch Center facility which will require Staton to raise the finance through bank loan leading to the commitment of interest payment, meanwhile, the investment will be required to repair the damaged roof of the Welch Center facility. Hence, this will not be a suitable option to acquire the facility for the future use.

Further, the third alternate is that either Staton can build the facility using its own equity funds with the bank loan or it can find an institutional investor to invest the equity portion for the construction of building and.............

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Holt Lunsford discusses how to grow his Dallas commercial real estate services firm and, as advised longtime client who is wondering whether to rent or buy industrial warehouses. Is focused on the highly competitive and all organizational $ 50 billion of real estate services, which includes property management, leasing, tenant representation, and other activities. What makes the firm Lunsford, in Holt company special? Explores what corporate strategy Lunsford should choose for your company, and what advice he has to do for his client. "Hide
by Arthur I Segel, Ben Margoles Source: Harvard Business School 23 pages. Publication Date: September 17, 2003. Prod. #: 804012-PDF-ENG

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