Wealth Opportunities in Commercial Real Estate: Management, Financing, and Marketing of Investment Properties

Problem Number 7

Three years have passed. The Discount Factory has 12 years to go on its lease. The tenant is current, although its payment history has not been perfect, and it has often paid the rent at the end of the month. The Discount Factory is a public company. The company's earnings for the past couple of years have been dismal. It has posted declining sales and increasing losses for each of the past 10 calendar quarters. Its stock has fallen from a high of $65 three years ago to its current value of $6. The Discount Factory's sales at the Home Run Center have also steadily decreased over the last couple of years. It is currently doing approximately $550,000 in projected annual sales. The breakeven sales point is approximately $800,000. Over the last three years, OK has managed to renew 51,410 square feet of tenant space and lease up a good portion of the vacancy in the Center so that only 3,230 square feet in the Center is vacant (approximately 1.9 percent of the total square footage of the Center). OK feels that they have created a tremendous value since they took the Center from essentially a 57 percent leased Center (counting the supermarket as vacant) to a property whose occupancy exceeds 98 percent. Exhibit A.6 on the companion website shows the new rent roll. The Home Run Center is listed for sale at $15,000,000. A potential buyer, Grand Slam, LLC (Grand Slam), is located through a broker. Grand Slam, LLC, is owned by Ethan Honorable and Andrew Letswalkaway. Grand ...