Should Eliot Conviser Buy the Brimmer Street Garage and Convert It to a Garage Condominium - Case Study Example

I. Should Eliot Conviser buy the Brimmer Street Garage? Why? Why not? The decision whether or not to buy the garage depends on the value that the garage can bring to Eliot Conviser. This value can be measured by looking at the feasibility of the project in terms of its market demand and financial returns. In terms of market demand, the Brimmer Street Garage definitely offers some advantage. Apart from the historic significance of the garage, as according to the case, it is the only facility that offers safe and convenient indoor parking within the vicinity. As parking has always been scarce within the area, the garage would not be short of tenants as demand for car parking is high as apparent in the high prices that tenants are willing to pay. The perception of exclusivity that is in line with being a tenant of the garage also denotes the high demand for it. In terms of financial returns, given the amount to be used to compute individual unit net common area charge, as stated in Exhibit 4 with a figure of 42,780, the individual unit common area charge amounts to 388.91 (if spread among the 110 spaces), or 32.71 in a month. If the rental price continues to be at 100 per car per month, then the business must be producing profits. Then this is a good investment. Thus, Eliot Conviser should buy the garage. II. Assuming he buys it. Should he convert it to a garage condominium? What are his other options? The decision to convert the garage into a garage condominium depends on the preferences of the market, that is, the preferences of the tenants and other prospective tenants. If the market needs a parking space, and they want to own it, then the garage condominium concept is possible. If the market does not want it, what happened with the previous owners failed venture will only repeat in Eliot Convisers. For Eliot Conviser to make a good decision, he must survey the market again as regards the feasibility of the idea. If the markets preference changes, say if parking space within the area has been scarcer than ever before, and ownership would definitely be a great substitute to renting the space, then the project can pursue. With the sentiment of the market to back up the idea of ownership of parking space, then the garage condominium concept would prove to be successful. However, as there is no evidence to any of these as stated in the case, it cannot be assumed that market sentiments and preferences have already changed to support the idea of garage condominium. With this, Eliot Convisers decision should be not to go ahead with the garage condominium. He, however has another option in order to make the business profitable. If he cannot sell the condominiums because the market decides that parking space should remain for rent, he can continue to rent the property, however he could increase the price in order to increase his profits and cover the costs of renovations, in order for him to recover his capital faster. This increase in price is possible because of the factors that support the strong demand for the parking space. For one, the demand for the parking space is strong because of the scarcity of parking space within the area. Also, the garage has been a historic site which increases its market value. Lastly, the perception of exclusivity that garage offers to its tenant because of the very low supply, the higher rental price can be increased. III. Assuming he goes ahead with the concept of a garage condominium, what must he do to realize a successful conversions and venture? In order for the garage condominium to become a successful conversion and venture, he must be able to persuade the market to own the parking space instead of rent it. This should be effectively done by employing strategic marketing to the investment. By employing strategic marketing, Eliot Conviser should set a vision, mission and objectives for the new venture. This will be the guiding principle for the establishment of this garage condominium. Afterwards, he should determine his sales objective, that is, how many condominiums he wish to sell given within a current time frame. This will give him direction as regards his marketing efforts. In order to craft his marketing strategy, he has to know who are the potential buyers of the condominiums. If the current tenants are not interested to purchase the conversion, then he must see to it that there is already a huge number of other people in the market within the vicinity who do. This way, if he converts the garage into a garage condominium, he will be able to find sufficient demand to back up the profitability of his investment. Then, he must know what these people are looking for in a garage condominium. This is not just about the functional benefit of the condominium, but the emotional benefit as well. This is because, Eliot Conviser has to deal with a major change in perception. The major opposition in the previous owners venture remained in the perception of the tenants that parking space should remain a rental property, not something to be owned. Without taking note of this major insight of the market, the previous owners effort went into waste because of this difference in perception. After determining what the market wants, Eliot Conviser can change the markets perception by communicating the benefits of owning a parking space than renting it. More specifically, it should sell the idea beyond owning a parking space, making it more relevant to the consumers. One of his options will be to to promote the condominium as a safety lodging for their cars, or any idea similar to that. Then these benefits should be communicated through integrated marketing communications, aimed to change the perception of the consumers. IV. Put together a detailed plan of action. Support your analysis with financials (income statements and balance sheets) for each option. Support your assumptions (bank loan interest rates, length of loan, etc). Option A: Go on with the renovations but continue on the current rental price of 100/month Option A is not financially feasible because it leaves Eliot conviser with a negative net present value of 247,544.29. At 100/month in rental rate, the revenues would not be sufficient enough to cover for his cost of capital that he will use for acquisition of the property as well as renovations. Option B: Go on with the renovations but increase the rental price up to 150/month Option B, raising the rental rates up to 150/month will still provide Eliot a negative net present value, thus it is not a good investment. Option C: Go on with the renovations but increase the rental price up to 180/month The third option with Eliot raising the rental rate for up to 180/month will provide him a positive net present value of 116,080.45. So far, this is the best option, as it provides value to Eliot as compared to the other two. Option D: Go ahead with the garage condominium conversion Going ahead with the garage condominium definitely provides Eliot with a negative net present value of 16,636. This is not a financially wise option for Eliot, as his money will not increase its value over a year even if he sells all the spaces in the condominium. Thus, he must not proceed with the conversion, as this amount would be even lower as the marketing costs that the change in perception entails to convince the market to buy the condominium units are not yet included. Option C is the recommended option among the four options that are presented. Eliot must buy the property, go ahead with the renovations, and using the renovation as another value-driver to cater to the needs of the market, Eliot can charge a price up to 180/month. This amount, if proven to be acceptable to the market, can give a high net present value to Eliot, greater than the profits that he can get if he pursues the conversion into a condominium. Also, the horizon for the analysis is only for 5 years. If it is spread over 10 years, it can change and the amounts may increase as well. Eliot should shell out the 25,000 from their investment account, then borrow the rest from the bank. Then he should proceed with the renovations, market the new building by communicating the additional benefits that are included after renovations, in order to support the higher price that it offers. This option will provide Eliot and his wife with higher return on their money. Read More