REE 4303 - Real Estate Investment: Leasing or Buying Analysis

This finance report analyzes a build-to-suit case for Convenient Marts, evaluating the financial viability of leasing versus purchasing a property for a new store. The report outlines the terms and conditions of a potential deal, including a 10-year lease with renewal options and purchase options. It details the costs associated with both buying and leasing, including site acquisition, design, construction, and development fees. The analysis considers factors like rent, loan interest rates, and potential penalties. The report concludes that buying the property is the more financially advantageous option for Convenient Marts due to the high costs and stipulations associated with the lease agreement. The report also discusses how to transfer land from a lease to ownership. The report is based on the REE 4303 course material.

Running head: FINANCE
Finance
Name:
Institution:
Date:

FINANCE
Introduction
For Convenient marts real estate committee, the project is to take it or walk away
basis. The following are the terms and conditions of the deal. Firstly, it is to develop a 10,000
square feet stores with an appropriate parking, signage requirements and ingress/ egress. The
deal term also has a lease of 10 years, with an extra 10 year renewal option and an option to
purchase it at any time at a fair market value. It also has an option to purchase in the 10th year
after the lease is renewed (Ball, Hail, & Vasvari, 2018)..
The rent for the first 10 years is $50,000 annually while the rent in the years of the
lease is $65,000 annually. The aim is to look at whether leasing or building of the stalls is
really a viable option in this regards. A certificate of occupancy if not in place in the first 14
months of the lease, the rent will be reduced to $40,000 annually. If the company, convenient
marts is released from the trade lease, it must pay a penalty of $60,000.However, I believe
that the site can be acquired for $120,000 while the approval, design and planning costs
would cost about $ 50,000.
The hard construction material are estimated to cost around $400,000. The long term
loan financing on a LIBOR plus is of a basis of plus 300 basis points which is currently a
cyclical low of 1.4%. Loan interest is adjusted quarterly with no amortization and is payable
through the penalty of the interest. There is also a development fee of 5% of hard costs plus
the approval, design and planning cost(Cortina, Ismail, & Schmukler, 2018).. The equity for
the project is available and is about 30% of the equity capacity.
Argument for purchase- Cost for Initial acquisition
Item $ $

FINANCE
Site acquisition cost 120,000
Design , planning,& approval cost 50,000
Construction material cost 400,00
0
Development fee- 5% of 450,000
22,500
Total cost 472,500
Total cost of acquisition 592,500
How to transfer land from a lease to ownership for 3% of the cadastral value Renting land for
building a house Renting land for business
Argument for leasing
Moreover, the future owner has every right to sell, donate, inherit or lease his land
again. Below I will tell you step by step how it is absolutely legal to transfer land from lease
to ownership for 3% of the cadastral value. In short, you have to: Build a building on the
land; To make the building a property; Submit an application to the Administration for the
purchase of land at a reduced price. Can be formalized, for maintaining a personal subsidiary
farm, summer house, , individual housing and garage construction. At the same time, the
period of the simplified procedure for registering citizens' rights to the aforementioned land
plots is not limited by any period (Huang, & Ritter, 2019).

FINANCE
Redeem at the value of the leased land at auction; Buy at a discounted rate the leased
land without an auction. If the lease agreement does not stipulate that you must lease the land
for a certain number of years before it is redeemed into the property, and there is also no
direct prohibition on transferring the leased land into the ownership, The method with the
redemption of the land under the construction object is the most popular, so I will talk about
it in more detail below (Wang, & Kwok, 2019). What documents are needed for transferring
land from a lease to ownership Registration of a land plot from lease to ownership is possible
with the following documents: A lease agreement or an agreement on the transfer of lease
rights to a land plot; The original resolution of the head of the district administration on the
provision of land for rent; Resolution of the chapter on termination of the lease.
Decision
The decision for the board of committee of convenient marts is to buy the property
rather than to lease. Buy is much cheaper than the lease, since lease agreement has a lot of
stipulations and penalties involved in the terms agreement.

FINANCE
References
Ball, R. T., Hail, L., & Vasvari, F. P. (2018). Equity cross-listings in the US and the price of
debt. Review of Accounting Studies, 23(2), 385-421.
Cortina, J. J., Ismail, S., & Schmukler, S. L. (2018). Firm financing and growth in the Arab
region. Economic Systems, 42(2), 361-383.
Huang, R., & Ritter, J. R. (2019). Corporate cash shortfalls and financing
decisions. Available at SSRN 2589096.
Wang, Q., & Kwok, Y. K. (2019). Real option signaling games of debt financing using equity
guarantee swaps under asymmetric information. Available at SSRN 3442989.