Jkj Pension Fund Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Jkj Pension Fund Case Solution

Introduction:

Sarah Griffin is a portfolio manager at JKJ Pension Fund.She is in charge of the real estate investment department of the company. Sarah Griffin was hired by the company to make the strategy for the company, which includes the plan that how the company should deal with its real estate portfolios as well as to provide advice on the new investments opportunities for the company.

Moreover, the pension funds are one of the fastest ways of savings in the domestic markets and these are the largest pool of private capital in the global market. Furthermore, JKJ pension fund is considered as the significant player by Sarah Griffin in the real estate industry. Sarah Griffin needs to consider a range of issues, from the diversification by property type to the ease of management in order to effectively evaluate the overall portfolio strategy. JKJ pension fund did not make any new investments or sales for three years; instead it focused its efforts to manage the eleven existing properties due to the collapse of the real estate market in the year 1990.

Problem Statement:

Sarah Griffin is facing an issue to provide top management with best advice on eleven real estate properties of the company whether to hold or sell the existing properties and to provide attractive investment opportunities for the company.

Case Analysis:

In the analysis of the case, we will analyze the portfolio and the diversification of all available properties of the company in the case and will analyze the cash flows and level of risks associated with each investment and to suggest whether to sell or hold the portfolio.

2. Portfolio Strategy for existing properties:

Undeveloped Land

There are three undeveloped sites in this portfolio that are labeled as Lots A, B and C in the Wilshire section of Los Angeles. The Lot A’s area is of 120,000 square foot land where, according to current zoning 812,000 SF can be built, Lot B consists of the 180,000 parcels where 900,000 SF space can build and Lot C consists of the 60,000 square foot land where according to current zoning 270,000 SF can be built. Moreover,Lot A can generate the annual return of $35,000 while the Lot B contain Carrying costs about $24,000 per year.

The cash flows of this property have positive future cash inflows. On the other hand, the risk associated with the investment is also low. The capitalization rate for retail and residential is ranging between 7.5 - 9.5% and this hotel is currently leased for 20 years, therefore, the level of risk is low for the property 1 option.

Decision:

Sarah Griffin should hold this option as the market value $ 540,909 of undeveloped sites is less as compared to this the investment $ 3,600,000.

Wilshire Plaza Garage

Wilshire Garage’s area consists of 3,500 spaces on five levels from three are subterranean; this area is located beside the Royale Plaza Hotel. Additionally, there is approximately 1600 monthly car parking as well as 1000 transient spaces that are available on daily and hourly basis. There are also approximately 900 spaces that are used by a near located hotel.

Moreover, the cash flows for the Wilshire Garage show the earnings inflows for the future growth and earnings of the investment. The market capitalization rate for the garage is ranging between 10.0% - 12%, whereas the level of the risk for the Wilshire Garage is medium as Wilshire Garage is giving earnings presently by three different parking's.

Decision:

Sarah Griffin should hold this option as the market value of Wilshire Garage is$10,730,000 which isless as compared to the investment of $21,400,000.

Wilshire Ground Leases

Wilshire Ground Lease is the ground lease that consists of three leases, which include Wilshire East Associates, Sid’s Restaurant and Banco Los Angeles. The Wilshire East Associates has no renewal policy while the lease of this option would end in the year 2043 with the netfixed rent of $58,000 annually. In addition to this, Sid’s Restaurant has renewal options of 55 years at FMV along with the Net fixed rent of $74,996 annually, while lease of this option would end in the year 2017. Lastly, Banco Los Angeles has no renewal options and lease of this option would end in the year 2023 with Net fixed rent of $85,000 annually.

Moreover, the level of the risk associated with the Wilshire Ground Lease is low as all the three available options are presently leased. The capitalization rate for the office and industrial properties is 8.5-10%.

Decision:

Sarah Griffin should sell this option as the market value $ 1,981,782 of Wilshire Ground Lease is more as compared to its investment $1,500,000.

Riverbank Central Hotel

The portfolio of JKJ pension Fund named Riverbank Center Hotel is a 28 story structure that contains 375 rooms and is a 161618 square foot building. The hotel is a four star and AAA 4-diamond rating hotel as well as it enjoys the easy contact through interstate 10 and 65. The occupancy of the hotel in the year was 53% that was expected to increase by 58% in 1994 and 60% in the year 1995.

Additionally, the net cash flows for the Riverbank Center Hotel are positive, indicating the favorable results for the future growth and earnings for the investment. On the other hand,the level of risk is moderate and the capitalization rate for hotels ranges between 9.5-12%.

Decision:

Sarah Griffin should hold this option as the market value ($3,712,102) of the Riverbank Center Hotel is less as compared to its investment ($18,750,000).

Riverbank Center Office Building

The fifth real estate property of the company is Riverbank Center Office building, which is a 13- story; 161618 square foot office building that is connected to the 28-story Riverbank Center Hotel. It consists of three tenants that include Am South that expires in 1997, Ambrecht Jackson also expires in 1997 whereas Merrill Lynch that expires in 1999.

Moreover, the level of operating and financial risk is less as it is the premier office building and the capitalization rate for office building is ranging between 8.5-10%. On the other hand,the present net cash flows for the Riverbank Center Office building are positive, demonstrating the favorable results for the future growth and earnings for the investment...............................

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