238Madison Avenue: Case Study
ExecutiveSummary and Project Background
Theproject shall involve the reinvention of 238 Madison Avenue which issituated to the west of the Madison Avenue along the 37thand 38thStreets. The building is a five-story walk-up building that is 34feet in width and has a double ground floor for retail andresidential units. As much as the existing structure is a perfectavenue in which there is constant cash flow, the zoning of thebuilding will allow for the build-up area to be used for a mixedpurpose that is residential, office and development projects. Thebuilding will be situated at the center of the Midtown Manhattanwhich is several blocks from the notable buildings in New York Citysuch Empire State Building, Times Square, and the Grand CentralStation. There are also other popular attractions that surround thebuilding such as the New York Public Library and the Manhattan Hallwhich is also a tourist attraction center. The property is alsosituated at the center of various subway lines which gives easyaccess throughout Manhattan and the surrounding regions.
Thisproject provides the perfect opportunity to reinvent andstrategically execute a plan that would improve the value of thebuilding. This project shall involve the purchasing of the buildingand come up with a new real estate model that can be more appealingto the customers and businesses. With the building bringing in closeto $500,000 monthly after all the expenses have been paid, there-evaluation and restructuring of the building shall increase thevalue of the project by close to double figures. The calculationswhich have been put forward by all the stakeholders involved in theproject shows an extra $350,000 income monthly after an addition ofseveral businesses and residential units to the western wing of thebuilding. Several cues have been highlighted that can promote thefeasibility and success of the project. These cues have beenregarding financial and regression analysis which makes adamantprojections in the future.
Tosuccessfully reinvent the building, a strategic plan is necessary,and it is important to apply the various theories of real estateinvestment consistently. It is important to stick to a well-definedinvestment process with a strategy that is based on analysis and notswayed by the psychology of the market. It is important that theproject is managed through the building of portfolio that has a longterm diversified approach with well-planned financial objectives.Through an entire financial planning process, there will beuncovering of risk tolerance coupled with goals and time horizonsthat will be used as a basis for developing an investment portfoliothat perfectly fits the project. After the development of an initialstrategy, it would be important to continuously monitor the portfolioand make rebalances when necessary by the objectives, the economicconditions and the changes in tax laws.
Theproject will be situated in a wealthy neighborhood in MidtownManhattan which is a representation of the lengthwise portion of theManhattan Island in New York City. Midtown Manhattan houses buildingof iconic nature such as the Empire State Building as well as theheadquarters of the United Nations. The area also has a lot ofrenowned businesses centers and entertainment zones such as Broadwayand Times Square Centre. The Midtown Manhattan which forms part ofthe neighborhood of the building separates both the Lower Manhattanfrom the upper part of the island.
Theneighborhood of the building is also one of the largest centralbusiness districts in the world and is ranked as some of the valuablepieces in the world. With the lower Manhattan being a major financialcenter, the Midtown neighborhood is one of the largest commercialcenters regarding entertainment and media as well as a thriving majorfinancial center only following the Financial District in lowerManhattan. Most of the skyscrapers in New York such as hotels andapartment are all within the Midtown. The neighborhood is also a hostto major commuters and residents who are working in most offices andbusiness units within the building. There are also other tourists,residents, and students who are in the office. Other areas such asthe Times Square and the Fifth Avenue corridor also have clusters ofretail stores and business units with the Times Square being theheadquarters of Broadway theater. At the same time, the Avenue ofAmerica is also the center to the three major television networks inthe U.S
Regardingzoning, the building will have several sections which shall be usedfor various purposes such as offices and retail establishments thatserve the entire region The C5 section shall be specificallyutilized by the famous streets such as Fifth Avenue, Madison Avenuefrom the 57thto the 87th.The C5 sections will be specifically used for hosting departmentstores, office buildings and other mixed buildings such asresidential space and office or commercial units. Hotels, retailshops, and other business services outlets, as well as manufacturingentities, will be allowed in the C5 section. But this section willnot host services such as home maintenance services, signs withillumination, and establishments of auto rentals as well as otheruses which are not allowed within the district.
Thecommercial floor area within the C5 section has a ratio of 4.0 to15.0 while the maximum residential FAR ranges at around 10.0 withoutany applicable bonus. C5-1A and C5-2A are ruled by the regulationsset by R10A while the C5-2 through to C5-5 is occupied by commercial,residential or any facility uses that can be configured as a tower.The C5-1 district can also allow the residential tower. Thecommercial uses within the C5 districts will also be exempted fromany requirements for parking since there is accessibility to publictransportation.
Criticalissues, Potential Problems and their analysis
Theproject might face several key issues which can pose potentialchallenges and problems in developing and reinventing its structure.First, the current occupancy of the building poses a great challengeto its development. The building is almost entirely occupied by therented regulated units, and this can be a huge problem regardingrelocation of the tenants to a new facility. It will be a cumbersomeprocess, and the occupants would feel inconvenienced in a huge waysince they would have to move to a new place as the process ofrebuilding takes place. This can pose a huge problem in the processof rebuilding. Another critical issue is about the light and air ofthe surrounding buildings. The buildings which are attached to bothsides of the property to be redeveloped have several line windowswhich have become an obstacle to the proper development of the site.
Marketstatistics and analysis have also provided a gloomy economic outlookwhich might become a challenge in the future for the project. In thethird quarter of 2016, the global economy was in a very precariousposition with the Brexit vote in the U.K having a substantial impacton the financial markets globally coupled by news and reports ofcontinued global refugee crisis. At the same time, the unpredictableand contentious presidential election also did a little to calm thepolitical and economic climate that was already tumultuous. The NewYork estate market had already been affected by the uncertainty thatwas present in the economic and political scenes. The demand forhouses was still present with several segments of the marketperforming better than others.
Thereal estate market in Manhattan is currently changing with the uppermarket shifting to favor the buyers rather than the sellers eventhough the market is not inactive. There is a high demand for theunder $2million market coupled with a tight inventory. Buyers arealso being attracted by low-interest rates within the price range,especially for those who are seeking a primary residence, even thoughthere is speculation of an imminent hike in rate. The buyers are alsovery of the price even though there is a huge demand. In marketswhich are uncertain, the buyers would wish to feel that they arepurchasing at lower prices. For example, three listings in Manhattangave a price range of $600,000 to $700,000 which even stood forweeks, but after the dropping of prices, there were bidding wars forthe properties and the homes later sold quickly at the asking priceor even above.
Thecritical issue is the process of pricing the apartment which can be arather complicated undertaking. The apartment or residential unitscan be of exceptionally high prices, but they are given a skewedaverage price, but a look at various market segments show that theprices are not rising drastically across the board. The price of anew condo in Manhattan area ranges between $900,000 and $3,200,000with the average prices in the resale market only rising slightly incomparison to the same period in the previous year. New condos inManhattan continue to attract high buyers with competitive pricingalso being critical in ensuring the regulation of the market.
Overall,the sales of real estate apartments in Manhattan has reduced by closeto 18% in comparison to the same time of the previous year, but it isalso important to note that almost 205 of the sales were not recordedduring that period. There has also been an annual decline in sales ofcondos in Manhattan with the weakness being recorded in the marketunits which are priced above $5million. There is also reportednormalizing market conditions which have been shown by the marketindicators such as reduced price growth, a decrease in the share ofhomes being sold over the market price and the time taken for theapartment to be on the market.
Recommendationsand Strategic Plan
Beforestarting the project, it is important to lay the groundwork bysetting out expectations for the planning process. There should be aprecise determination of the involved stakeholders and what theirresponsibilities would be in the rebuilding of the project. It isimportant that the objectives and the action plans are set out andthat the project proposals are built, and then the resourcerequirements estimates are done. The portfolio planners are alsoexpected to conduct planning analyses and provide their input.Lastly, a timeline should also be set for the strategic plan with allthe expected outcomes being communicated to all the participants.
Thefirst action would involve conducting a survey on the various floorsto determine the specific portions that are being underused oroverused. These specific portions would then be brought down andcompletely done away with for a proper redesigning. The building willbe turned into several floors which can be used for several purposes.The basement floor of the building will be divided into compartmentswhich would be specifically meant for parking purposes. The groundfloor will then be split into a retail unit mostly for displayoutlets such as jewelry and watches. It shall also include cafeteriasfor any passerby who would be interested in picking a takeaway meal.At the same time, there shall be other retail units within the floorwhich would sit adjacent to the cafeterias and the display outlets.On the first floor, there will be 18 residential condos which wouldbe rented out to the free market tenants. The residential units willsit above the display outlets and the retail units which will besituated on the ground floor. Each residential unit will have asanding floor and would be a full floor condo while the penthousewould have a wooden floor with a duplex.
Theretail units, display outlets, and the cafeterias will take a totalof 350 feet of the ground floor. On the other hand, on the firstfloor, the residential units will take the whole floor with the lobbytaking the adjacent spaces to the rear. This will make it possible toget enough space for the frontage of the residential units andtherefore being more attractive to the tenants. The design also makesit possible to get enough space for the elevator which would belocated at the center of the rear part of the building. The elevatorswill also have enough space that would allow for the transportationof house materials.
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