Case Study Eagle Towers was a development company, business and finance homework help
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For this project there is a Business case example that needs
to be read and analyzed.
The outline for the case analysis is printed towards the
bottom of the short story.
Ones done reading the short story please answer the
questions in the Outline for a
Case Analysis. This must be in APA format and be at least 3
½ pages long. Please let
me know if this project will work for you.
Eagle Towers was a development company set up specifically
by property investors to purchase a run-down south coast hotel, demolish and
then rebuild it into 20 retirement flats. The company had three founder
investors and was run day-to-day by an experienced project manager working on a
contract basis. The old hotel was bought with outline planning permission for
redevelopment for $750,000 and the three investors raised $1 million overall
from personal and family resources, allowing some working capital to cover the
initial phases of the project (fees to the project manager, architects and
legal costs) and the work on the initial group of five flats. The overall build
was split into three phases with the exact timing of the final phase especially
likely to be influenced by market conditions. All the building work on phase
one was subcontracted to a specialist contractor for a fixed price (including
quality and delivery targets for the work). The projected selling price per
unit (after legal costs) on the phase was $100,000 per unit. The land cost
$37,500 per unit and on-site build costs were a further $30,000 a unit, leaving
a projected profit from each flat of $32,500. Based on the projections from the
first five units, across the whole three phases, the founder investors believed
the redevelopment work should finally generate $650,000 profit from an initial
$1 million investment. Phase one built and sold according to plan. All five
units sold within a month of them being marketed. Phase two for a further five
units was started immediately using the same builder and a similar fixed price
arrangement (building costs per unit went up slightly between phase one and two
but this was more than offset by house price inflation, so profit margins in
excess of 30% per unit continued). However, early on in phase two, the project
manager reported problems with build quality under the contract, as well as
some slippage in the pace of construction. The investors became very worried
that the early marketing for phase two would be wasted as potential buyers
would go elsewhere. Indeed, the phase one site was adjacent to phase two.
Completion of phase one also began to be impacted by work on-site with most of
the new residents due to move into the new flats in the coming weeks (the
overlap would increase further as phase two slipped behind schedule). As the
five sales in phase one had been through exchange of contracts, if the
completion did not occur on time, penalty clauses would be due. As the worries
of the investors mounted, the advice from the project manager was to bring the
building work in-house. The building firm was in breach of both the quality and
delivery targets in the phase two contract, and Eagle Towers had the right to
end the contract without compensation (ensuring that the builder was paid for
all the work actually completed and the materials on site). The project manager
also knew that the building firm worked mainly through subcontractors anyway
and Eagle Towers could work direct with them provided he was able to bring in a
foreman as well. As this revised project plan was implemented, the directors of
Eagle Towers spotted a further problem. At the start of phase one, the
investors provided $250,000 above the land purchase costs to start building
work. After fees and legal costs, the project manager was left with $200,000 to
pay for construction, enough to build between six or seven houses. The idea was
that the proceeds from phase one would come on stream providing additional
funds to complete phase two and so on, until all three phases were built.
However, advance purchasing of materials by the builder, combined with the cost
of hiring a foreman and worries about delays to the legal completions from
phase one, had the potential to quickly lead to a cash-flow problem. The
solution for the directors of Eagle Towers was to accelerate the start of phase
three. Although this strategy required additional working capital it was
obtained by a deal struck with a national chain of care homes for elderly
people who were looking to diversify into development activity. The care home
owner invested $400,000 into Eagle Towers for just under 30% equity share of
the business. This investment was sufficient to overcome any worries over the
cash-flow for phase two, as well as provide resources for phase three. Eagle
Towers Property Development Ltd. only traded for three years and was wound up
before its fourth anniversary. All 20 properties were sold and house price
inflation ensured that the phase three units averaged $115,000 each. As a
result, the total project revenue was $2.150 million against land and building
costs of $1.430 million. Consequently, the original three investors received a
combined gross development profit of $511,000 and the care home chain $209,000.
Discussion Construction and real estate-related businesses account for nearly
one in five SMEs so the example of Eagle Towers is not uncommon. Speculative
real estate development presents a number of challenges for firms seeking debt
funding (unlike builders who are working on a contract basis). This is because
such projects only generate funds to repay debt on completion and, until then,
the work consumes cash well in advance of any security value. (In contrast, a
contract builder would work to a schedule and normally receive stage payments
to cover any loan repayments.) Taking this consideration into account, the $1
million founder equity set up the venture on a solid base. The initial plan was
to use the equity invested as initial stake to support the lifetime of the
project, combined with some careful cash-flow management in the scheduling of
sales receipts from the various phases of activity. This plan was reinforced by
the fixed price costs negotiated for phase one and part of phase two. Unlike
most of the case studies discussed in this chapter, the business no longer
exists and was wound down after the building work was completed. The project
was a success, although the funding plan had to be modified and a new
third-party investor brought in to ensure success (although this decision
reduced the returns to the original investors, albeit this impact was offset by
market price inflation on the selling values on phase three units). Even when
facing a cash-flow problem, the original investors decided to raise more equity
rather than seek an overdraft. Moreover, when the building work was taken over
by Eagle Towers, no other finance products were used by the business as the
construction activity was still undertaken by subcontractors. A final
observation is that the funding decisions made by the owners of Eagle Towers
and the external finance sources used illustrate that the distinction between
cash-flow and entrepreneurial activity can become blurred. As discussed in
Chapter 1, speculative real estate is an activity in which this often happens.
As this is a one-off project, the cash-flow and entrepreneurial aspects of
funding have merged into one. Only by raising enough funds to underpin
cash-flow can the entrepreneurial objective of the business be achieved. This
provides a contrast with, for example, a manufacturing activity where funds
raised to underpin research and development activity provides an
entrepreneurial boost to the order book, followed by a production phase where
cash-flow needs to be sustained to fund output to fulfil contracts.
FOR A CASE ANALYSIS
EXAMINE AND DESCRIBE THE BUSINESS ENVIRONMENT
Describe the nature of the organization under
consideration and its competitors.
Provide general information about the market and
Indicate any significant changes in the business
environment or any new endeavors upon which the business is embarking.
DESCRIBE THE STRUCTURE AND SIZE OF THE BUSINESS
Analyze its management structure, employee base,
and financial history.
Describe annual revenues and profit.
Provide figures on employment. Include details
about private ownership, public ownership, and investment holdings.
brief overview of the business’s leaders and command chain
IDENTIFY THE KEY ISSUE OR PROBLEM IN THE CASE STUDY
In all likelihood, there will be several
different factors at play.
Decide which is the main concern of the case
study by examining what most of the data talks about, the main problems facing
Examples might include expansion into a new
market, response to a competitor’s marketing campaign, or a changing customer
DESCRIBE HOW THE BUSINESS RESPONDS TO THESE ISSUES OR PROBLEMS
Draw on the information you gathered and trace a
chronological progression of steps taken (or not taken).
Cite data included in the case study, such as
increased marketing spending, purchasing of new property, changed revenue
IDENTIFY THE SUCCESSFUL ASPECTS OF THIS RESPONSE AS WELL AS ITS
Indicate whether or not each aspect of the
response met its goal and whether the response overall was well-crafted.
Use numerical benchmarks, like
a desired customer share
show whether goals were met
talk about the response as a whole
POINT TO SUCCESSES, FAILURES, UNFORESEEN RESULTS, AND INADEQUATE
Suggest alternative or improved measures that
could have been taken by the business
specific examples and back up your suggestions with data and calculations
WHAT WOULD YOU DO?
Describe what changes you would make in the
business to arrive at the measures you proposed
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