Question 1After collecting all those information, David is trying to conceptualize his problem. Supposeyou were David, how you will analysing the problem.You are expected to describe and investigate the problem in a more systematic way, andprovide answers for:• What were the key decisions?• What were the key uncertainties?• What was the timing of decisions?• What was the timing of the resolution of uncertainty?• What data would he need in order to make an intelligent, defensible decision? Please read through the following case and answer Question I and 2.Real Estate InvestmentReal Estate Investment Corporation (REIC) is a firm that is principally engaged in the purchase,development, management, and sale of real estate properties, particularly residential properties.It is currently evaluating whether or not to purchase the old ABC Community Hospital, locatedin the East ABC of Singapore in a neighbourhood undergoing rapid growth and rejuvenation.The ABC Community Hospital operated unprofitably until 2021 when it elosed and filed forbankruptey. Real Estate is considering purchasing the building, converting it to apartment units,and operating it as an apartment complex.The hospital and its property are currently being offered for sale. Real Estate has performed anextensive evaluation of the site and neighbourhood, and has projected the value of the propertyto be $5 million. After considering its size and location, Real Estate thinks that this is anattractive price and is considering offering to purchase the property at this price. David is incharge of the hospital project for Real Estate. David has thought that this property could beconverted into "low-income" apartments. The location seems ideal for such a conversion, andwith the potential subsidy from government housing agency, the remodelling could be quite aprofitable investment.The Singapore Housing and Development Agency (SGHDA) has been administering the Low-Income Housing plan (LIH) for many years, in an effort to accommodate families in need ofaffordable housing. Because of the high demand for housing in Singapore, rents have beenincreasing at rates higher than 10% per year in many neighbourhoods, leaving large numbersof families without affordable housing. For this reason, the SGHDA started the LIH plan, whichprovides financial incentives for real-estate developers to become involved in the rehabilitationof properties for low-income families. Under normal circumstances such projects might not beappealing to developers, since other investments might yield a higher return (with similar risk).With LIH financial incentives, which represent large subsidies to the developer from theSGHDA, these projects become attractive enough to warrant investment. The SGHDA takesmany things into consideration before approving any project under the LIH plan, and allapplications are carefully reviewed by different area specialists. The LIH plan subsidiesrepresent long term investments of large amounts of money. Therefore, the SGHDA takes greatefforts to ensure that all projects are fully completed and that they serve their original purposeof providing housing for low-income families. For companies which apply for government LIHplan, the complete application process may cost about $50,000.David needs to decide whether his company should offer to purchase the hospital or not;however, the decision process is more complex than this, since there are many factors that areuncertain. One of the key issues is whether the 96-unit renovation plan would be grantedapproval by the SGHDA (with subsidy). In some instance when a developer applies forSGHDA subsidies under the LIH plan, the SGHDA evaluation process can take as long as fivemonths. Unfortunately, Real Estate has to make some decisions quite soon.According to David, some of the uncertainty concerning the approval of a potential applicationfor the hospital property could be resolved if he could postpone his decision for at least onemonth, until after the coming November housing policy revision under Ministry of HousingOne of the two listed proposals is fully supportive of the LIH plan, and encourages more low-income housing for such developments. The other proposal has not been supportive of the low-income housing concept or the LIH plan of subsidizing private development. Obviously, the chances of approval of an application for the hospital property to qualify for LIH plan subsidieswould increase or decrease according to the outcome of the policy revision. David thought thatif he were to wait until after November to make a decision on the property, he would have abetter idea of whether his LIH plan application was going to be approved.Unfortunately, there is always the risk that the property would be purchased by some otherbuyer if Real Estate waited until after the policy revision. David therefore needs to decidewhether to make an offer now or to wait until after the policy revision and risk that the propertywould already be sold.If and when Real Estate were to offer to purchase the hospital, they must also offer a non-refundable deposit of 15% of the purchase offer (in this case, $750,000). Once Real Estate hasmade an offer to purchase the hospital, Real Estate can then apply for the LIH plan subsidies.After 60 days from the date that the offer and deposit are drawn up, Real Estate must eithercomplete the offer to buy the property, in which case the remaining 85% of the value of theproperty is paid, or withdraw the offer, forfeiting their 15% deposit.There is no guarantee that Real Estate's LIH subsidy application would be processed anddecided upon within the 60-day period Real Estate has before making a final decision. (In thepast, the SGHDA approval process has taken anywhere from one month to five months.) If theSGHDA were to decide on Real Estate's application within the 60-day time period, then thiswould make Real Estate's evaluation process easier. However, there is a distinct possibilitythat if Real Estate were to offer to purchase the hospital (to develop if for low-income housing),they would not hear from SGHDA regarding the status of their application before the 60-daylimit that the hospital trustees have. Real Estate would have to decide either to withdraw theiroffer (and lose their 15% deposit) or to purchase the property without knowing whether theirapplication for LIH plan subsidies is going to be accepted.Initially, David thought that the hospital renovation project would be profitable only if itreceived the LIH plan subsidies from the SGHDA. Renovation as well as maintenance costson the property were projected to be quite high, and consequently higher rents would ordinarilyhave to be charged to tenants to cover these costs. However, because of all of the newdevelopment and construction that has been going on in the neighbourhood, David thought thatmedium-income families might find the renovated apartments attractive and be willing to paythe higher rents. This might make the renovation project cost-effective even if it were notapproved for LIH development (and subsidies). So there is an alternative choice of developingnon-subsidized commercial apartments for high income families.

Question

Question 1After collecting all those information, David is trying to conceptualize his problem. Supposeyou were David, how you will analysing the problem.You are expected to describe and investigate the problem in a more systematic way, andprovide answers for:• What were the key decisions?• What were the key uncertainties?• What was the timing of decisions?• What was the timing of the resolution of uncertainty?• What data would he need in order to make an intelligent, defensible decision? Please read through the following case and answer Question I and 2.Real Estate InvestmentReal Estate Investment Corporation (REIC) is a firm that is principally engaged in the purchase,development, management, and sale of real estate properties, particularly residential properties.It is currently evaluating whether or not to purchase the old ABC Community Hospital, locatedin the East ABC of Singapore in a neighbourhood undergoing rapid growth and rejuvenation.The ABC Community Hospital operated unprofitably until 2021 when it elosed and filed forbankruptey. Real Estate is considering purchasing the building, converting it to apartment units,and operating it as an apartment complex.The hospital and its property are currently being offered for sale. Real Estate has performed anextensive evaluation of the site and neighbourhood, and has projected the value of the propertyto be $5 million. After considering its size and location, Real Estate thinks that this is anattractive price and is considering offering to purchase the property at this price. David is incharge of the hospital project for Real Estate. David has thought that this property could beconverted into &#34;low-income&#34; apartments. The location seems ideal for such a conversion, andwith the potential subsidy from government housing agency, the remodelling could be quite aprofitable investment.The Singapore Housing and Development Agency (SGHDA) has been administering the Low-Income Housing plan (LIH) for many years, in an effort to accommodate families in need ofaffordable housing. Because of the high demand for housing in Singapore, rents have beenincreasing at rates higher than 10% per year in many neighbourhoods, leaving large numbersof families without affordable housing. For this reason, the SGHDA started the LIH plan, whichprovides financial incentives for real-estate developers to become involved in the rehabilitationof properties for low-income families. Under normal circumstances such projects might not beappealing to developers, since other investments might yield a higher return (with similar risk).With LIH financial incentives, which represent large subsidies to the developer from theSGHDA, these projects become attractive enough to warrant investment. The SGHDA takesmany things into consideration before approving any project under the LIH plan, and allapplications are carefully reviewed by different area specialists. The LIH plan subsidiesrepresent long term investments of large amounts of money. Therefore, the SGHDA takes greatefforts to ensure that all projects are fully completed and that they serve their original purposeof providing housing for low-income families. For companies which apply for government LIHplan, the complete application process may cost about $50,000.David needs to decide whether his company should offer to purchase the hospital or not;however, the decision process is more complex than this, since there are many factors that areuncertain. One of the key issues is whether the 96-unit renovation plan would be grantedapproval by the SGHDA (with subsidy). In some instance when a developer applies forSGHDA subsidies under the LIH plan, the SGHDA evaluation process can take as long as fivemonths. Unfortunately, Real Estate has to make some decisions quite soon.According to David, some of the uncertainty concerning the approval of a potential applicationfor the hospital property could be resolved if he could postpone his decision for at least onemonth, until after the coming November housing policy revision under Ministry of HousingOne of the two listed proposals is fully supportive of the LIH plan, and encourages more low-income housing for such developments. The other proposal has not been supportive of the low-income housing concept or the LIH plan of subsidizing private development. Obviously, the chances of approval of an application for the hospital property to qualify for LIH plan subsidieswould increase or decrease according to the outcome of the policy revision. David thought thatif he were to wait until after November to make a decision on the property, he would have abetter idea of whether his LIH plan application was going to be approved.Unfortunately, there is always the risk that the property would be purchased by some otherbuyer if Real Estate waited until after the policy revision. David therefore needs to decidewhether to make an offer now or to wait until after the policy revision and risk that the propertywould already be sold.If and when Real Estate were to offer to purchase the hospital, they must also offer a non-refundable deposit of 15% of the purchase offer (in this case, $750,000). Once Real Estate hasmade an offer to purchase the hospital, Real Estate can then apply for the LIH plan subsidies.After 60 days from the date that the offer and deposit are drawn up, Real Estate must eithercomplete the offer to buy the property, in which case the remaining 85% of the value of theproperty is paid, or withdraw the offer, forfeiting their 15% deposit.There is no guarantee that Real Estate's LIH subsidy application would be processed anddecided upon within the 60-day period Real Estate has before making a final decision. (In thepast, the SGHDA approval process has taken anywhere from one month to five months.) If theSGHDA were to decide on Real Estate's application within the 60-day time period, then thiswould make Real Estate's evaluation process easier. However, there is a distinct possibilitythat if Real Estate were to offer to purchase the hospital (to develop if for low-income housing),they would not hear from SGHDA regarding the status of their application before the 60-daylimit that the hospital trustees have. Real Estate would have to decide either to withdraw theiroffer (and lose their 15% deposit) or to purchase the property without knowing whether theirapplication for LIH plan subsidies is going to be accepted.Initially, David thought that the hospital renovation project would be profitable only if itreceived the LIH plan subsidies from the SGHDA. Renovation as well as maintenance costson the property were projected to be quite high, and consequently higher rents would ordinarilyhave to be charged to tenants to cover these costs. However, because of all of the newdevelopment and construction that has been going on in the neighbourhood, David thought thatmedium-income families might find the renovated apartments attractive and be willing to paythe higher rents. This might make the renovation project cost-effective even if it were notapproved for LIH development (and subsidies). So there is an alternative choice of developingnon-subsidized commercial apartments for high income families.

Accepted Answer

Decision making is important in any business. The managers have to consider many factors that may…