A Good Deal?

Show them the money and you, too, could live at The Plaza in New York City! Life at the city’s storied hotel is kush no matter what, but this newest listing is giving new meaning to the high life. Curbed directed our attention to the Astor Suite, a four-bedroom, six-bath rental, which is currently being offered for $165,000 per month. Yes, that makes it New York’s most expensive rental on the market.

Questions:

1. If as the video indicated, the apartment is worth $55M today, what percent of the value is the owner willing to accept in annual rent? How does this compare to the rent to value ratio of an average furnished apartment in your area?

2. Assuming that the owner’s renovations were $5M, what percentage annual return will the owner receive on his investment, if he is able to sell it for $55M? How would he record the journal entry?

3. Based on the square footage stated in the article, what is the sales price per square foot? Look online and find a home with similar square footage that is furnished and discuss how it compares. What are some of the qualitative differences that the buyer be paying for in The Plaza apartment, as compared to the one you found for sale online?

Source:

Zeveloff, J. (2011). At $165,000 A Month, This Is The New Most Expensive Apartment Rental In New York, Business Insider, Dec. 8 (Retrievable online at http://www.businessinsider.com/most-expensive-apartment-rental-new-york-astor-suite-plaza-2011-12)

Knutsen, E. (2011). Only at the Plaza Could They Charge $165,000 a Month for An Apartment, The New York Observer, Dec. 8 (Retrievable online at http://www.observer.com/2011/12/only-at-the-plaza-could-they-charge-165000-a-month-for-an-apartment/)

CNN Video, New York’s Most Expensive Rental, Dec. 15

Avatar Accounting

A working knowledge of accounting is helpful for almost any career endeavor. In real estate, for example, brokers must have a thorough understanding of the numbers involved in the decision-making process.  Real estate brokers traditionally determine whether a buyer can make payments to a bank, identify tax benefits of a purchase, and even determine whether cash flow from an industrial property justifies a purchase price. The accounting expertise of real estate brokers is now finding relevance in new frontiers like Second Life, an online virtual community. In Second Life, real estate entrepreneurs are applying their accounting knowledge when they rent real estate “sim” islands to other Second Life avatars. With their understanding of accounting, entrepreneurs are making real-world profits and finding financial success in a non-traditional market.

1. What ethical concerns might a seller of “sim” real estate consider?

2. Are the real estate stakeholders of a “sim” transaction the same as the stakeholders in the real world?

(Retrievable online at http://money.cnn.com/video/news/2010/03/17/n_real_estates_second_life.cnnmoney/)