Real Estate

Real Estate

Paper instructions:
Please read a first scenario in the attachment after that write Request for Proposal as the instructions in second scenario (see the attachment).

Per the Boston City Hall scenario handout:

Write a memorandum (one page) to your respective boss(es): if a) then about whether to lease it out or sell it outright and why (the issues, advantages and disadvantages involved with each); if b), then about whether to lease it or purchase it outright and why (the issues, advantages and disadvantages involved with each) Refer to lease administration and property management, and perform online research about the circumstances of the building and site.

This is the first scenario

TO: The Management, HFY Inc.
FROM: CFMO, HFY Inc.
DATE: 06-23-2014

It has come to the attention of management at HFY Inc. that the company urgently needs a new headquarters within the Boston area. The Boston City Hall is an ideal location for setting it up and the major challenge is whether to purchase or lease the property. In making this decision, it is prudent to analyze the costs and benefits of both approaches.

The benefits of leasing property include tax benefits since leases are deductible expenses, lower capital expenditure as the amount is paid over time and security of property as it is owned by the leasing company. Its disadvantages include lack of ownership of property, higher total expenditure compared to purchase cost and additional costs for repair and maintenance.

The benefits of purchasing the property include flexibility in repair and management of the building, possible profits in future sale of the property if its value appreciates, better forecasting of costs and the possibility of letting the property in future to gain an income stream. Its costs include a high capital expenditure used in purchase of property, possible repossession of property if mortgage is not paid on time, time wastage on alterations or repairs, and the added responsibility of safeguarding the safety of the building.
After assessing the benefits and costs of both alternatives, it is imperative that the environment and goals of HFY Inc. are taken into consideration. HFY Inc. is a multibillion-dollar company that needs the headquarters for long-term use. The company’s growth and large scale operations require an accurate cost forecasting method and independence from third parties when carrying out business activities. Since this is a large company, it is also capable of raising the capital outlay needed for purchase of the property.

After analyzing all these factors, it is clear that purchasing the property is more prudent than leasing it. HFY Inc. can afford the purchase and it will remain in control of the property. The management should therefore purchase the Boston City Hall.

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