Academic journal article Journal of Real Estate Literature

Airway Industrial Partners: A Case Study for Seller Financing

Academic journal article Journal of Real Estate Literature

Airway Industrial Partners: A Case Study for Seller Financing

Article excerpt

Journal of Real Estate Literature, 5:6978 (1997)1997 American Real Estate Society

GEORGE IZZODoctoral candidate in Marketing and Real Estate, University of Mississippi, Oxford, MississippiARTHUR L. SCHWARTZ, JR.Professor of Real Estate and Finance, University of South Florida, St. Petersburg, Florida 33701-5016Case objectives and useThis case examines the planning issues that must be addressed in the termination stage of

a real estate investment, the last stage in the ownership cycle. This field-researched case

study, with unique marketing and tax implications, would be appropriate for use in an

undergraduate real estate finance or investments course.Case synopsisAirway Industrial Partners is a general partnership comprised of four individuals with

equal shares. Several events of the previous yearwhich include the premature death of

one partner, the retirement and relocation of another partner, and an out-of-town change

in professions of still another partnerhave exacted a management burden on the remaining in-town partner. While the two out-of-town partners assist in the management of the

partnerships property, a 22,000 square foot, triple-net leased industrial/service facility

rented to an automotive franchised service business, in a remote capacity, the estate representative of the deceased partner contributes nothing. The lease expires at the years end,

and the tenant has expressed some reservations about releasing at the escalated renewal

rate contained in the lease, citing as reasons a glut of available space and lower market

rents. The tenant has expressed an interest in purchasing the building on an ownerfinanced basis at the $450,000 option price stated in the lease. A recent MAI appraisal

ordered by the deceased partners estate representative indicated a market value of

$390,000.Located in Clearwater, Florida, the Airway Industrial Partners property has several

internal strengths not easily duplicated by competing properties. The property has an

excellent locationeasily accessible at the intersection of a frontage road and a busy

county feeder road and highly visible from U.S. Highway 19, a major north-south countywide thoroughfare. The building is only six years old, and the on-site parking exceeds

county specifications by nearly two times. At this time, the partnership must decide which

direction to take with regard to the future management and disposition of the property:

hire a Realtor to release and manage the property, put it up for sale in what could be

termed an oversold market, or sell it owner-financed to the in-place tenant.Contact person: George Izzo, Department of Marketing and Management, College of

Business Administration, 19 Connor Hall, University of Mississippi, Oxford, MS 38677,

(601) 234-0595, fax (601) 232-7010.Airway Industrial Partners: A Case Study for Seller

Financing70 GEORGE IZZO AND ARTHUR L. SCHWARTZ, JR.For a copy of teaching notes, contact the ARES Case Study Clearing House: M. Atef

Sharkawy, College of Architecture, Texas A&M University College Station, TX, (409)

845-7883, fax (409) 862-1784.***1. The Airway Industrial Partners caseJoe Bradfield was perplexed as he waited to board the red-eye from Memphis to Tampa.

It was a cool Thursday in early May 1994, and he had spent the past several days carefully reviewing two similar real estate proposals. The proposals were from an in-place tenant, David Tallman, offering to purchase the 12,000 square foot industrial building his

company, Arpco, leased. Under each proposal, Airway Industrial Partners, the owner,

would have to provide substantial owner financing. One proposal resembled a land-contract, basically a lease purchase, agreement-for-deed. The other required the partnership

to provide a 95 percent loan-to-purchase price wraparound mortgage. …

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