FNCE90049 Property Investment Development Finance: Drechtal Report

This report analyzes Drechtal Pharmaceuticals' real estate strategy, focusing on the decision to lease or buy property given the company's anticipated growth. It evaluates the viability of leasing space versus purchasing commercial property, considering factors like headcount growth, cost implications, tax benefits, and control over the building. The report suggests relocating in the immediate future to manage headcount effectively and explores alternative real estate strategies, including financing options and potential capital gains. A pitch presentation summarizes the findings, recommending either a leasing strategy with expansion rights or purchasing property with debt and equity financing, highlighting the advantages of ownership such as fixed costs, tax deductions, and control over building improvements. The report concludes that relocation is necessary for Drechtal Pharmaceuticals' future growth and provides references for further research. Desklib provides solved assignments and past papers for students.

Property Investment Development
Finance
FNCE90049 Assignment 2, Semester 1,
2018

REPORT
To
Markus Steuer
Director of real estate
Drechtal Pharmaceuticals
Case scenario
Drechtal Pharmaceuticals is planning for leasing space in various buildings when they are not
sure about the viability of this strategy in where there is a rapid increase in the firm’s
headcount. Further, they are finding an alternative real estate strategy in this aspect to resolve
the issue that firm should relocate or not in the immediate future.
Lease strategy and firm’s headcount
Headcount refers to the number of employees present in a workplace or employed by a
company. The growth of headcount is critical to success thus it is required to be managed in a
proper manner. The company is required to have understand that in what manner their
headcount will affect their space needs (Fauzi, Zainuddin, Nawawi & Johari, 2017). For
example, if the company is currently having 10 people and it is a probable increase of 20 in
the next 2 years, then the company is required to build that into their planning of upfront
space. This approach will generally be less disruptive and cost consuming in the long run
(Campbell, Jardine & McGlynn, 2016). By making use of leased space company will be able
to have proposed floor plan and can maximize their density seating plan by considering
following aspects:
 Rights of expansion by having more space
 PivotDesk (Rights to sublease)
 Appropriate evaluation of space
Alternative real estate strategy for the firm
In an alternative to this, Drechtal Pharmaceuticals can buy commercial space. By purchasing
a building, business will not be required to pay growing rent or lease amount. Further
business and you may be eligible for a fixed-rate on up to 80 % of the mortgage loan and due
to this so that most of the monthly payment will not be increased. In this option; business is

also entitled to refinance at a lower rate for the reduction of financial cost (Haynes,
Nunnington & Eccles, 2017). Further in last, where the mortgage loan is entirely paid off,
then the obligation of the monthly payment will also be eliminated.
The decision for relocation in the immediate future
As per the given case scenario, it is expected that there will be sound growth in headcount
thus for proper management Drechtal Pharmaceuticals is required to relocate in the
immediate future. The company is required to build that into their planning of upfront space.
This approach will generally be less disruptive and cost consuming in the long run.

PITCH PRESENTATION
This presentation hereby is to assist Markus Steuer regarding leasing decision by considering
their planning procedure for leasing space in various buildings. However, they are not sure
about the viability of this strategy by considering the fact that there is a rapid increase in the
firm’s headcount.
Leasing strategy is viable in a situation of the rapid increase in the firm’s headcount. It is
because the increase in headcount is success indicator thus it is required to be managed in a
proper manner. The company is required to have understand that in what manner their
headcount will affect their space needs and should find space accordingly. Drechtal
Pharmaceuticals company is required to build that into their planning of upfront space. This
approach will generally be less disruptive and the cost is consuming in the long run thus same
is suggested to be implemented on an immediate basis.
In a situation where the company is not is finding appropriate leasing option then they can
also consider the purchase option of working space property. They can finance it by having a
portfolio of equity and debt for its funding. This option will have following advantage in
comparison to leasing:
Highly possibility of fixed costs and no rents to be paid: Making a purchase of building there
is no need to pay the increased rent and the owner might be able to obtain a fixed rate on over
80% of the total mortgage loan so that the charges of monthly payment do not take a rise.
Along with this, the owner to an extent to for re-finance at reduced costs and low rate.
Ultimately, when the mortgage loan is paid, the owner can alleviate the payment based on
months.
1. Tax deductions: Being an owner, one can make a reduction in depreciation and the
interest payments on mortgagee, which can make a reduction in the tax liability. Moreover,
the owner also has the advantage of writing off of repairs, taxes, maintenance and all related
costs. In order to make improvements, the owner is also eligible to earn advantages on
depreciation taxes.
2. High Space yet income: While buying a building, it is likely that owner possesses more
space for doing future expansion while a permanent location is also provided. This assists the
company in constructing its location while enhancing customer value.

3. High Space yet income: While buying a building, it is likely that owner possesses more
space for doing future expansion while a permanent location is also provided. This assists the
company in constructing its location while enhancing customer value. Along with this, there
is a benefit of extra space by which the owner can do leasing, which will assist in generating
income while helping in covering the full costs of a mortgage.
4. Investment/capital gain. By considering industry trends, there are chances that value of
building purchased by business will grow. This will add to the capital valuation of Drechtal
Pharmaceuticals. And, in a situation where the expanded space is of no use Drechtal
Pharmaceuticals company can sell, and it might provide them capital appreciation in cost
which cannot be attained in the option of the lease.
5. Total control. As the owner of the building, Drechtal Pharmaceuticals company can take
further decisions for improvement, alteration, expansion and enhancement the building as per
their business needs. This controlling authority will have a positive impact on the
enhancement of the building for making improvement in the reputation and customer
impression on the business of Drechtal Pharmaceuticals.
As per the given case scenario of Drechtal Pharmaceuticals, it is expected that there will be
sound growth in headcount thus for proper management Drechtal Pharmaceuticals is required
to relocate in the immediate future.

REFERENCES
Campbell, J. D., Jardine, A. K., & McGlynn, J. (Eds.). (2016). Asset management excellence:
optimizing equipment life-cycle decisions. CRC Press.
Fauzi, N. S., Zainuddin, A., Nawawi, A. H., & Johari, N. (2017). A Pilot Framework of
Corporate Real Estate Sustainable Performance Measurement (CRESPM).
International Journal of Academic Research in Business and Social Sciences, 7(12),
241-254.
Haynes, B., Nunnington, N., & Eccles, T. (2017). Corporate real estate asset management:
Strategy and Implementation. Taylor & Francis.