GRAYBAR SYNDICATION CASE Solution 

In order to resolve the issues related with the time and management aspects, the New York City hired Helmsley Spear Inc for the proper inspection of the items of the building. The hiring cause the additional cost in the income statement of about $ 10,000 annually which lowers the profitability of the overall investment.

The day-to-day operation and management of the building are controlled by Webb & Knapp Inc. whereas, Sub lessee’s duty includes making repairs, selling office space, and collecting rent from tenants.

  1. What is the value of property both in 1958 and 1977 to the various participants?

In order to do the valuation of the property both in the year 1958 and the year 1977 to the various participants, the calculations are performed in the exhibits. By taking the discount rate of 12.94% and the terminal growth rate of 4%, the valuation for the various participants are performed using the discounting cash flow method as present in the exhibit. It can be seen that the Associates get the highest result as we move from the year 1957 to the year 1977 almost the valuation gets doubled.

  1. What are the potential advantages and disadvantages of investing in real estate syndication? What has determined the form of ownership chosen for the Gray Bar Building?

Potential Advantages (Liu)

Diversification

The first and the foremost advantage of investing in real estate syndication include access to diversification which is the key concern of every investor. It helps the investor to diversify their funds among a number of different properties. With this investment, the investor is basically protected against significant losses which might occur in real estate business. Moreover, it helps in optimizing the portfolio in connection with the risk and return of the overall portfolio.

Liquidity

For any investor, the second major concern is related with the requirement of liquidity which is mostly ignored by the inexperienced investors who buy real estate. However, with the help of syndication process, enough capital is there to the give the investment staying power, the ability to endure economic shortfalls. The availability of this spendable cash is the biggest motivational factor for investing in real estate syndication.

Tax Advantage

In investing in real estate syndication, the investor enjoys the significant advantage of tax savings due to the depreciation of property. In each year the value of real property depreciate and the investors in real property business take this advantage and report this depreciation as an expense on their taxes which help in offsetting any additional revenue by reporting a real estate loss. This overall scenario works as a tax shelter for income of the business.

Protection from rising inflation

The other advantage of investing in real estate syndication is the hedging against the rising inflation because of the pre set monetary return for a period of time as declared in the leasing agreement, which in the situation of rising value of property could still prove to be profitable for an investor which is key attraction of investing in real estate syndication.

Access to real estate skills

Investing in the real estate business is not an easy task which requires additional skills to perform the valuation of the property time to time. Moreover, the terms of the deal including its financing structure, negotiation leases or managing the property are all very difficult for the nonprofessional investors. So in the presence of syndicates the investors easily get the real essence of the business……………….

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