Case Analysis: Steel Street C Case Solution & Answer

Case Analysis: Steel Street Case Solution

Therefore, it can be concluded that the company will not be able to payback its loan and to reduce its cost of debt if its sticks with the same construction and renovation strategy. Finally, it can be summarized that several changes are required to complete the project in a timely manner. Furthermore, if the company commits to the same strategy, then it will face negative cash flows which will ultimately lead towards loss and inefficiency.

Steps to keep the project on track

There are numerous hurdles which are creating problems for the company to complete the project. However, the company took necessary initiatives to complete the project with a cost effective manner. Nonetheless, there are still several factors, which are not allowing the company to complete the project on time.

The first issue is that there is a lack of integration among the contractor and architect to complete the project on time. However, both the contractor and architect have significant experience over their relevant fields but due to lack of synchronization, the project is being delayed. Furthermore, if the renovation team fails to complete the project on time or even if the company fails to complete the retail floor before Christmas season, the clients will not lease these stores for a long time which will ultimately block the cash inflows for the company.

Finally, the construction and renovation team is not ensuring that they are following safety precautions due to which they can clearly show that the site is under construction or renovation. In addition, this carelessness can harm both the renovation team as well as the general public. Moreover, the license of the contractor may also be cancelled for this step as the City inspector has noticed all these stuffs and called the contractor to meet with him. Now the company can overcome these situation by making sure that the company is making safety policies while promising to the City inspector that they will follow the safety policies strictly. However, as far as other issues are concerned, they can be overcome by making proper integration among the renovation team while ensuring that the project is on track and will be completed on time.

New Model

The appendices B, C, D and E have been made to show the new calculations while there are not major changes which were made in the calculations. However, minor changes have been made in the excel sheet such as the discounting rate has been rounded to 10% for all the debt. On the other hand, the hedge fund has been excluded from the scenario. Moreover, the third source is assumed as external equity. In addition, the pro forma of the company is indicating that the company will have negative cash flows initially while they will be converted in to significant positive amounts. Finally, the construction budget has been made by adding the per floor cost to the initial uses of sources to reach the final balance. However, the cash flows valuation still indicates hat the project is not feasible as the value of NPV is still negative after discounting the inflows at a rate of 10%.


Appendix A

Pro Forma 4Q 2008 2009 2010 2011 2012 2013 2014 2015 2016
Rent Roll $80,451 $551,876 $710,648 $768,735 $768,735 $768,735 $845,609 $930,169 $1,023,186
Vacancy (10%) -8,045 -55,188 -71,065 -76,874 -76,874 -76,874            (84,561)     (93,017)      (102,319)
Effective Gross Income 72,406 496,689 639,583 691,862 691,862 691,862            761,048     837,152        920,868
Op Ex @ $4.50 -37,634 -150,273 -167,699 -185,126 -185,126 -185,126            (34,247)     (37,672)        (41,439)
CFO 34,772 346,416 471,884 506,736 506,736 506,736 $726,801 $799,481 $879,429
First Mortgage -20,282 -81,128 -81,128 -81,128 -81,128 -81,128          (116,288)   (127,917)      (140,709)
Second Mortgage -25,875 -103,500 -103,500 -103,500 -103,500 -103,500          (145,360)   (159,896)      (175,886)
Bridge Loan -22,500 -90,000 -90,000 -90,000 -90,000 -90,000          (127,500)
CFAF ($33,885) $71,788 $197,256 $232,108 $232,108 $232,108 $337,652 $511,668 $562,834



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