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Jkj Pension Fund  Case Solution & Answer

Jkj Pension Fund  Case Solution

Decision:

Sarah Griffin should hold this option as the market value $ 6,065,005 of Riverbank Center Office building is less as compared to its investment of $ 12,400,000.

Empire Hotel Rochester New York

The empire Hotel is a seven story structure that contains the 364 guest rooms and is located in the heart of the downtown Rochester. In addition to this, it has two food and beverage outlets as well as the hotel has over 16,000 square feet space that is available for the banquets.

In addition to this, the Riverbank’s cash flows for the Empire Hotel are positive signifying the favorable outcomes for the future growth and earnings for the investment. On the other hand,the level of risk is less as the cash flows are showing a more positive trend and the capitalization rate for hotels is ranging between 9.5-12%.

Decision:

Sarah Griffin should hold this option as the market value $ 10,341,730 of Empire Hotel is less as compared to the investment of $ 14,320,000.

Maple-wood Apartments

Maplewood Apartments is a residential project of the company that contains 304 rental units that are housed in 19 two-story buildings. An average apartment contains the space of 866 square feet and it requires some capital improvements in order to update its reputation as well as to remain competitive in the market.

Furthermore, the cash flows for the Maple-wood Apartments are positive, indicating the favorable results for the future growth and earnings for the investment. The capitalization rate for the office and industrial properties is ranging between 8.5-10%, whereas the level of risk is moderate.

Decision:

Sarah Griffin should sell this option with the market value of 12,160,000 as Maple-wood Apartments are the oldest apartments in the city and customers are mostly attracted towards newly renovated and furnished apartments in the region. Therefore, it is imperative to sell it immediately.

 Midtown Mall

Midtown Mall is a famous regional shopping center of the company having an area of 920,000 square feet that includes three anchor stores and 150 shops. The present and future cash flows for the Midtown Mall are also positive, representing the encouraging outcomes for the future growth and earnings for the investment. The capitalization rate for the office and industrial properties ranges between 8.5-10%, whereas the level of risk is low.

Decision:

Sarah Griffin should hold this option as the market value ($ 52,406,588) of undeveloped sites is less as compared to the investment of $ 60,000,000.

Alpha Center

The ninth portfolio of the company is the property of Alpha Center, which is a two story building containing 92,738 square feet area that includes 73,383 net rent-able square feet of office along with 6,372 net rent-able square feet of storage space.

Moreover, the cash flows for this option are optimistically projected by the management of JKJ, indicating the favorable results for the future growth and earnings for the investment. The capitalization rate for the office and industrial properties is ranging between 8.5-10%, whereas the level of risk is low.

Decision:

Sarah Griffin should sell this option as the market value ($ 10,438,497) of Alpha Center is greater than the investment of $965,561.

Path-mark Supermarket

Path-mark Supermarket is the tenth real estate portfolio of JKJ, which consists of 2.3 acre site that contains a 21,632 square foot supermarket and it is located on the Main Street. The present net cash flows for this option are positive, indicating the favorable results for the future growth and earnings for the investment. The capitalization rate for the office and industrial properties is ranging between 8.5-10%, whereas the level of risk is moderate due to the highly competitive market environment.

Decision:

Sarah Griffin should sell this option as the market value ($ 1,198,224) of Pathmark Supermarket is greater than the investment $900,000.

Flamingo Village

The final real estate portfolio of the company is Flamingo Village, which is a multifamily rental project in the North Miami Florida and it was completed in January in the year 1990.In addition to this, the cash flows for the last option are also favorable, signifying the favorable results for the future growth and earnings for the investment. The capitalization rate for the office and industrial properties ranges between 8.5-10%, whereasthe level of risk is moderate due to the increasing size of the market.

Decision:

Sarah Griffin should sell this option as the market value ($12,205,800) of Flamingo Village is more as compared to this the investment $ 8,900,000.

3. Portfolio and diversification:

Diversification of portfolios is basically a technique of the company to diversify its risks associated with the market conditions of a particular industry. For example, if the real estate market is currently down, then the company’s portfolio in the hotel industry will balance this downfall of real estate market. The diversified portfolio of JKJ pension fund consists of the collection of investments mainly in the fixed income products, government bonds, common stocks, real estate equities and other conservative investments. In addition to this, the diversification strategy of JKJ pension fund is to minimize the risk as well as to maximize the profit over the investments.

The blocks in the development of the diversification strategy should include the classes of investments, types of assets and potential growth of the investment. The other important factors in developing the diversification strategy for JKJ pension fund include risk associated with the investment, management skill regarding controlling of the investments and return on the investments.

Recommendations:

Analysis on the portfolios of JKJ Pension Fund suggests that the company should sell some of its properties and hold others. The properties, which the company should sell, are Properties 3, 7,9,10 and 11. The properties, which require holding, are Properties 1, 2, 4, 5, 6 and 8. Additionally, it is also recommended that it should hold the properties that are Undeveloped Land, Wilshire Plaza Garage, Riverbank Center Hotel, Riverbank Center Office Building, Empire Hotel, Maple-wood Apartments and Midtown Mall. Moreover, it is expected that there is a chance that the market value of these properties would further decrease that would result in a decline in the worth of the property.

Therefore, it is important for JKJ pension fund to sell the properties whose worth and prices are demonstrating the highest market values in comparison with the invested amount. On the other hand, it is beneficial to hold the properties whose market values are less as compared with the invested amount and sell those properties when the market values of each of the property increase than the above investment………………………..

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