Southpark IV

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

Busse Place, a 95,000 square feet commercial property located in Schaumburg Illinois, is underperforming. Following the recession of 2007-2008, at an already distressed rent market with an average vacancy rate of 25%, Busse Place is way below the average with a 62% vacancy rate. With 7 million available square feet in the market, land-lords have very little leverage on renters. On top of this, unemployment is increasing and the macro-economic projections for the future are not clear. Deadlocked by financing limitations, Sanchez is limited in her ability to match increasingly competitive market demands.

With three potential leases on the line, Sanchez must decide how willing she is to accommodate her clients and to outbid her competitors, 1,500 Higgins Road and Two Schaumburg Place. As Sanchez is nearing the final stages of each of the leases’ negotiations, she has to develop a competitive offer that will generate enough revenues to cover costs while still securing the leasing contracts.

As it stands, Sanchez’s current offers are priced $ 1.5-3 above her competitors. Sanchez’s main strategy should be to generate enough income to cover the looming $690,589 that will be required during 2009 unless occupancy improves. By doing so, Sanchez will secure the property and prevent substitutional risks to the project due to loan default implications. Northwest Trust Company (NTC) with an expected lease of 10,000-13,000 square feet should be prioritized by Sanchez and pursued aggressively due to the lease’s size. Once NTC is secured Sanchez can retain cash-flow stability. With regained stability and confidence, Sanchez will now have more freedom in her negotiations with Riggs Executive Search Group (Riggs) and Meinenke & Bock (M&B).

2. 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?

Since the revenues from a lease with NTC are crucial to the viability of the investment in Busse Park, Sanchez should do all in her hand to secure the lease. Sanchez should set the price to $22 per square feet. This price point would allow her to be competitive with 1,500 Higgins Road, which most recent contract was set to $24 per square feet. Even if Atcher was truthful when stating that Sanchez’s rates were $3 higher than her competitors, by setting a $22 rate Sanchez will likely outprice1,500 Higgins Road’s offer. On the other hand, it seems that due to the nature of REIT and the demands for constant dividends, Sanchez won’t be able to outprice Two Schaumburg Place. Sanchez, who is limited in her ability to lower prices due to cashflow demands, could differentiate