Success Stories

Research & Analytics:
Case Studies: Redevelopment vs Sale

Abstract:

Two sisters inherited a functionally obsolete property occupied by a single 20,000 square foot tenant. When the tenant vacated, the owners found themselves unable to lease the property as-is, and did not know whether to lower the asking rent, to invest significantly in the building to make it leasable at a higher rent, or to sell the property. Admiral’s analysis of each scenario clearly indicated that renovation would be the riskiest and least profitable option, providing the clients with an actionable way forward with the property.

CHALLENGES:

  • When their property’s only tenant vacated, the owners were unable to re-lease the space. They were suffering from the burden of the property’s negative cash flow and needed to quickly assess the best way to lease or sell the property.
  • As the property involved multiple partners, all decisions had to be made by consensus, significantly complicating the decision-making process.

Solution:

  • To help the sisters quantify the costs and returns of each option, Admiral created cash flow models for all three scenarios and provided an assessment of the risk profile of each option. To support the assumptions used in the models, Admiral applied information from its leasing and investment sales experience in the market, as well as its research on comparable properties in the area.
  • The final analysis showed that reinvestment in the building was not only the riskiest of the three options, but also the least profitable. The remaining options, selling the building or leasing the space at a lower rent, had similar returns.

Client BENEFITS:

  • By completing the above steps, Admiral was able to provide its client both a quantitative and qualitative basis for decision-making, and facilitated consensus between the partners.