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Back to School: Real Estate Development of Off-Campus Student Housing Case Solution & Answer

Back to School: Real Estate Development of Off-Campus Student Housing Case Solution  

Case brief

Two friends:Kimberly Slater and Christopher Lenard are concerned about developing a student-housing complex near the University of Wisconsin, Madison, through replicating the highly successful, similar development of Slater near the University of Florida. They considered Madison as attractive market whose demographically favorable for the investment in the student housing, in the summer of 2012. But, before committing the major share of the personal wealth to the project; it is of paramount importance for Lenard to conduct a more careful and comprehensive analysis of its potential returns and risks. The case sets out to investigate the pitfalls and merits of various approaches to have a financial analysis of the real estate development projects.

Qualitatively discuss the pros and cons of Slater and Leonard choosing Madison as the target market for the proposed luxury student-housing development idea.

There are various benefits and demerits of and Leonard choosing Madison as the target market for the proposed luxury student-housing development idea, which are discussed below:

Pros

The demand of the houses built near University of Florida’s high and after the critical analysis; Lenard came to know that there is a shortage of housing near the University. In 2010, the Madison Metropolitan Statistical area had a population of 568,593. As of the 2010’s census, the population of Madison was 233209, showing an increase of 12.1 percent since 2000. Madison is known to be the hub of government and education activities, and within 20 years it  is expected to witness a boom in high-tech organizations. According to the Forbes magazine, Madison is considered among the top 10 cities for growth and academic employment. Thus, the significant boom in the high-tech organizations and growth in local employment would lead towards increase in the demand of rental housing.

Additionally, the on-campus housing is not enough for the students in the University of Wisconsin, therefore there is a likelihood that the students would look for multifamily properties to live in, which are nearby the campus. Furthermore, the rents-tend to increase by 2.5 percent to 5 percent each year,where the rental of average off campus reaches up to 520 dollars to 760 dollars, each, thus demonstrating the profit generating potential of the location.Despite declining or low occupation-existence throughout the region; the foundations of real estate are strongly growing overtime.

Cons

Since the rate of tax is higher in Wisconsin than it is in Florida; it might create some challenges for Slater and Lenard, and there would be a need to make adjustments when communicating with the local regulators. The risk of climate change might adversely impact the desired amenities, for example: outdoor amenities or outdoor pool and design of the proposed property in which Lenard and Slater are thinking of building, near the campus of the University of Wisconsin, as the weather change also tends to delay the time by which the project is expected to be completed. Hence, the rate of coalition among workers in Florida would affect the cost of construction to a greater extent, because the unionization rate in Wisconsin is greater than the unionization rate in Florida. The affordability of students to pay the rental fee could hinder the ability of Lenard and Slater to generate higher amount of profit, due to which they must not limit the facilities of leasing it for students only……………..

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