8 SPRUCE STREET CASE STUDY

8 SPRUCE STREET CASE STUDY

Question 1: Should FCR have foreseen the choice with which they were faced in March 2009? Was it obvious? Consider the answer to this question while assessing the rental and condo market in New York City and Lower Manhattan through 2008.

It is crystal clear that Forest City Ratner Companies had speculated or seen the choice or predicament that befall them in march 2009 while they were still on with their ambitious 8 spruce project. Gilmartin, who was by then the executive vice president of FCR, you who was by then the senior vice present of FCR as well as the entire project management team foresaw and discussed that choice. The last-minute withdrawal of Pace university from the 8-spruce project, just before its commissioning or groundbreaking, opened the eyes of all the concerned parties and especially Gilmartin, Yu, and the project team. This sudden withdrawal of pace university, citing that they were not yet ready for such an ambitious and complicated development, acted as an eye-opener to the management, which in turn reconsidered their initial architectural design. It is apparent that initially, the administration had considered and even included it in the architectural design, that they will have a mixed development property in the lower Manhattan. This property, which would be named as 8 spruce, would be the tallest and most unique residential development in the city of New York. The 8 spruce would contain a learning institution on its ground floors of up to the 7th floor, and then it would have a range of residential apartments ranging from one-bedroom units, two-bedroom units, as well as three-bedroom units. These residential units would run-up to the 38th floor. Further, according to the management of FCR, they would have executive condos specially designed for the well to do individuals starting from the 38th floor onwards.

During this period, there was a boom in condo markets in the city of New York. The population had ballooned and doubled, and demand was extremely high for almost every personal item. Every major retail supermarket or store had opened a branch in lower Manhattan or was in the process of opening. Therefore, according to Gilmartin, You and their colleagues, this was the best time to come up with such an ambitious project like 8 Spruce in the lower Manhattan. There was no doubt that it was going to sell with demand given the already ballooned populace in the region, with about 76 percent of them living in rented apartments. It is important to note that it was not obvious that there was going to be a collapse in the financial markets during or after the completion of the project.

Question 2: If you were Gilmartin, would you halt construction or continue to build? If you continue to develop, would you build residential rental units or condos? As you consider the options, what are the financing metrics of each? What role does financing play?

If I were Gilmartin, I would not halt the construction of the 8Spruce project. This is simply because stopping the construction of the project will kill the initial vision of FCR in the first place. Halting the project at 38 floors and maybe changing its design to end at 38 floors will kill the attractive as well as selling or marketing point of the project. It is important to note that the most important marketing strategy for this project was the uniqueness that would have come with it being the tallest residential apartment in the city of New York. This was and will remain the best-selling point of the apartment. On the same note, I would suggest and continue building or developing residential rental units instead of condos. This is due to two main reasons. One, even with the fall or collapse of financial markets nationally or internationally, life has to continue. As a result, people are not going to migrate back to rural homes in the context that financial markets have collapsed. They will instead continue working hard to sustain their livelihood. In that process, they will always need residential places to live in. Secondly, condos are business units. Therefore it means that if the financial markets are low, there are higher chances that very few individuals will be able to open new business premises during difficult financial times. However, those with already running businesses will continue with their operations but will rarely shift to new structures due to hard economic times. As already understood, FCR had secured Liberty loans of low-interest rates from six banks to undertake the project. FCR was already assured of the 1st to 7th-floor clients who even had paid their commitment finances. That is the New York school and the hospital. Financing plays a crucial role in achieving enormous projects. It is practically almost impossible to single handily finance multi-billion projects without financing options from the banks. They are essential in development since they allow for longer and flexible repayment terms.

Question 3: Should FCR “take the money and run” by selling off the existing 38 stories as condos and just cut their losses? What’s the analysis for this scenario?

FCR is a publicly-traded company with well-known administrators. The worst mistake they can do it to sell off the property and run. This is because it will take very little time to search, locate, arrest, and charge the owners in the court of low. Further, this is a company with an excellent reputation in the united states with hundreds of great projects on its name. Therefore, it will be detrimental for the company to even think across those lines. It is significant to note that difficult economic times come and pass. Therefore, the collapse of the financial markets at that time is not there to stay but to pass. The best action for FCR is to stay put and continue with the construction of the 8 spruce residential projects with the already secured liberty funds. It is even possible that by the time the project is getting to full completion, the economic times have greatly improved due to robust government policies in its endeavor to remedy the collapse of the financial markets. It is crucial for every leader in any organization to acknowledge and accept that there are different economic times and that each challenge calls for special attention. In the contemporary world, with the present advanced technology, the leaders of FCR will be easily reached and even extradited to the United States in case they manage to flee to another country.

Question 4: Could FCR have dealt more effectively with the community, given the lawsuits? What could they have done better?

Yes, FCR would have been more productive with the society given the lawsuits. The most important thing the company would have done when intending to go into such a massive project to make all the interested clients deposit their commitment funds that are bound by low. If FCR had done this arrange with pace University, it would have been complicated for Pace to withdraw from the project at the last minute, thus sending Gilmartin as well as her team back to the daring board. Secondly, if FCR developed a plan of selling the units they intended to build before developing them, it would have been more comfortable also to generate some funds for the project. The company would have devised a deposit committing each unit that is fully guided by the law, where each client commits with a particular percentage of funds worth the unit they intend to rent or buy.