Mgmt 278 - Busse Place

Ana Sheila Victorino

MGMT 278

3/10/2016

Busse Place

1. How would you assess the current situation at Busse Place? What leasing strategy should Sanchez propose to Fairchild?

The Situation at Busse place could be described as dire. Collins properties pro-forma was extremely optimistic but the reality presents anything but. The period is 2009 so the economy is in the midst of a recession and experiencing 9% unemployment and high vacancy rates at about 25%. In the specific area where Busse Place is located, the situation is even worse. A convention center build in Schaumburg in 2006 raised hopes of an improving situation but the recession had the opposite effect. There are 7 million square feet of space available on the market allowing for very little leverage. At the Busse property in particular, the vacancy rate is 62% due to a recent bankruptcy from one of the tenants. Given this particular situation, Sanchez and the team should mazimize their return but prioritize filling the lease as fast as possible.

First, Sanchez should base its strategy around NTC. Sanchez should focus on securing NTC as the tenant of the 6th floor. They would work well as an anchor tenant and might have the ability to pull in other tenants. They would help provide NOI stability. Once they have been leased, they should have an easier time leasing the rest of the buildings. They should pursue Meinenke & Bock and Riggs second and then leverage that to fill out the rest of the building.

Property Notes

• One of highest quality buildings in neighborhood
• Prime location near O’hare and major expressways
• 38% filled (62% vacancy rate)
• efficiency ratio = 86%
• rentable area = 82,020
• Not meeting pro forma and cash flow well below debt service
• Acquired by Collins properties in 2006
• 95,372 square feet
• On 25 acre site w/ hotel, retail, fitness, and restaurants
• 500 parking spots; free parking
• lease rate = gross + op ex
• Purchase price = $13,565,000 ($165/sq foot)

• Total acquisition cost = $15,940,000

• 2008 egi = $732,321
• all new leases must be green
• projected lease up to 94% occupancy w/ no increase in rents over next 3 years

Market

• Long struggle w/ high vacancies
• Vacancy rate = 25% (7 million square feet on market)
• Unemployement rate = 9%+
• Economy in recession
• Building owners had little bargaining power
• Schaumburg Hit especially hard by econ downturn
• Market vacancies 15-20%
• Average asking rent = $26/square foot

1. What lease rates and terms should Sanchez offer to the prospective tenants: Northwest Trust Company, Meineke and Bock, and Riggs Executive Search Group? How should she handle the presentations and negotiations?

Sanchez should offer Northwest Trust Company the “best deal” based on the strategy that they will serve as the anchor that can reinvigorate Busse place. Since market rent rate is $26 per square feet, Sanchez should lower the price per square feet to $21 per square foot.  Although this is lower than even competitors, the strategy, is that this allows Sanchez to attract and confirm NTC.  She should also lower the price per square foot for the other tenants to $23 as it was mentioned that Sanchez was currently charging $3 more per square feet than competitors. Since Sanchez needs to lease this out as fast as possible, she cannot afford to charge more than competitors. For Meineke & Bock and Riggs, Sanchez should also offer tenant improvements to these tentants and highlight the strength of the NTC anchor. Sanchez should also offer all tenants 8 months of free rent to show a commitment to the tenants and to make the offer more attractive.