GRAY BAR SYNDICATIONS Case Solution
If we look at tenant’s agreement then it would be an advantage to hedge the rental payments with the proposed ratios in the future. This would decrease the level of the inflation rate to suffer and allow every tenant participant to renew the agreement when the contract expires. The beginning of the 19th century posed some advantage to Real estate business. Various new investors had the opportunity to take advantage of it and to increase the capital and size of the business.
As Graybar was holding by the New York Central in the early 1927, therefore, it was leased by the property of Metropolitan Company under the fixed agreements. The sub lessor, in that case, operated almost the entire building. They decided to expand the operations with different tenants and allowed them to enjoy the handsome rental income. These leaseholders acted as the controller of operations; this Metropolitan Company paid $18,000,000 to New York Central to hold the shares.
In the agreement, it was decided after some years that the property would be subject to sub-lease and given to other participants as well as associates. On the other hand,$4,000,000 wereleasehold by Associates and acted as a partner in Gary Bar business. Associates werethen agreed to sub-lease in order to recover their rental costs given in agreement.
Webb & Knapp contracted with Associates to expand the process of a tenant. The process indicated that there wereno limitations for the newcomer to acting as a participant. Under the terms, every tenant had the opportunity to generate high yields. The operations of Graybar Building show that total rental payments were $2,540,000 given by sub-lessees. The results of net operating revenue were high in 1957 as compared to previous years,which indicated the high margin of rental income in the future. The operation size could be expanded in future due to the demand of restructuring of the location. This would allow each leaseholder and tenant to increase the level of rental incomes through the restructure of the building.
Value of the property
The initial investments made by the companies during 1957 indicates that the high volume of cash flows was recorded and expected to increase due to the demand of the business. However, the investment of Metropolitan Company analysed that it had made huge profits as compared to other participants within the building of Graybar.
On the other hand, Associates also received payments from sub-lessees, howeverthere was a potential threat for the Metropolitan to generate estimated profits in 1977 because the contract would be expired and needed to replace someone to give payments. The tenure of sub-lessees was over after 1977 and posed a threat to metropolitan Company to pay enough amount to New York Central.
Under the performance of Associates, it generated better results in 1977 while expected to rely on different tenants involve to benefit the company. However, amortization expense was paid to Associates for over 18 years of contract by Metropolitan. It was analysed that the future of Metropolitan Company would be posed to bankruptcy due to certain economic fluctuations projected by different analysts.
Advantages and disadvantages of investing in a real estate syndication
According to the business environment, the level of market demand was high in the real estate, and therefore, certain comments from the analysts regarding the growth opportunities had been highlighted. Therefore the investors, who were involved in the real estate business would generate high rental incomes as compared to other nature of businesses. The valuation of properties under the business nature would significantly increase in the coming period. Speculators were involved in taking higher profits and realized that this could be the turning point for them to become a valuable investor……………
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