WINTHROP PARK DEVELOPMENT Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

WINTHROP PARK DEVELOPMENT Case Study Solution

Cambridge Savings Bank

Peter went to the Cambridge Savings Bank, which was building its own building nearby, for a loan because he knew the bank was excited about underwriting a noticeable project in its own neighborhood, especially in a large and admiring local market.

Peter had approached the Massachusetts Carpenters' Pension Fund to cover the $5.8 million BaMc of Boston loan. Palandjian requested a $7.9 million boost to replace their previous loan.The 57.8 million will encourage Nth to fulfil Palandjian's promise to construct the Holy Cross Armenian Catholic Church, cover much of their predevelopment expenses, and return some money to their investors. The Palandjian hoped that by securing the Carpenters' pledge, the Carpenters' Fund would turn this loan into a building facility at a low cost of capital, which will overshadow the rumor that Intercontinental would be pressured to hire union carpenters.

Peter's father's previous projects, though largely union, had been "free shop" inventions for decades, so this formal obligation was unprecedented.Unfortunately, the Carpenter's Pension Fund agreed on decreasing the total leverage allocation for its committed funds (for internal financial reasons) that summer & was unwilling to offer a fresh pledge to fund the building.

Indirect players

The indirect players of this projects are two regional banks from whom Peter has took the loan amounting to $5 million. These regional banks are: Pioneer and Wainwright bank

Analysis

The net operating income has been calculated for 104 Mt Auburn, Old Wing and the residential construction. Old Wing and the residential construction. The operating expenses of 10% are subtracted from the income coming through different divisions. The net operating income is derived as 1,550,097 for 104 Mt Auburn, 729,736 Old Wing and 4,013,604 and a total of 6,429,132 (See Appendix 1).
Afterwards the value of the property is calculated using the cap rate and through the comparable analysis. The value of property through comparable is calculated for 104 Mt Auburn, Old Wing and the residential construction. In 2001 at 6.5%, the value of 104 Mt Auburn is calculated as 23,847,646 and in 2006 the value become 25,834,950 at 6%.

In 2001 at 6.5%, the value of Old Wing is calculated as 11,226,711 and in 2006 the value become 12,162,270 at 6%. In 2001 at 6.5%, the value of Residential Constructionis calculated as 61,747,754 and in 2006 the value become 66,893,400 at 6% (See Appendix 2).

Moreover, the valuation using the comparable have been calculated 104 Mt Auburn. The retail had a size of 25992 and 5427 for office. The retail had a value of 15461278.0 and the office had the value of 3228237.7, resulting a total value of 18689515.7.

The operating cash flows are calculated from 2000 to 2004. The operating cash flow in 2000 is 611,704 and the cash flows afterwards are grown at a rate of 10% annually, which resulted in cash flows of 672874.4 in 2001, 740161.84 in 2002, 814178 in 2003 and 895595.826 in 2004. The cash flows along with a terminal value at 2004 are discounted at a rate of 7%.

The analysis shows that the net present value of the project is greater than the loan amount which the company is asking for, as it is greater than the permanent loan amount i.e. the permanent loan amount required by the company is 13.8 million, however the NPV analysis shows that the project is generating a net present value of 18.68 million approximately. It proves that the company does not need to take the additional loan, as the project is providing a greater return then the loan amount...............

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