Model-Eliciting Activity (MEA) - Part A
Morgan Place Condominiums - Individual Activity
(Estimated Time: 10 minutes)
Individually:
1. Individually, read the attached memo.
INTEROFFICE MEMORAND UM
TO:
ENGINEERING 106 TEAM
FROM:
ALEX LIAO, REAL ESTATE DIVISION DIRECTOR,
MURPHY AND HAMILTON BUILDING ASSOCIATES
DATE:
02/05/04
RE:
UNIT PRICES FOR MORGAN PLACE COMPLEX
Our company has recently acquired land in the West Loop of Chicago where we intend to construct a thirty-story
complex of luxury condominiums called Morgan Place. This is our first residential building project. To acquire funding
from banks and other investors for the project, we need to demonstrate that we can produce a competitive product;
therefore, we need to develop a business plan. A business plan includes information about the types of condominiums
we intend to build, projected costs, and projected profits from condominium sales. To estimate the costs and profits,
we need to develop a method for pricing the condos. We envision that a pricing model for a condo will consist of a
base price plus an additional charge for an optional luxury package.
Management is asking your engineering team to provide assistance in the development of the pricing model. Please
respond with a concise report of the condominium features your team will consider when creating your model. Be sure
to include whether each feature increases or decreases the value of a condominium. In addition, your team will need
to differentiate between features that impact the base price and those that could be included in luxury packages. For
those features contributing to the base price, your team will need to rank these factors according to their impact on
price. Finally, your team will need to describe how information about each feature will be used in your base price
model.
I have attached a press release containing information about the condominium project that will be distributed to local
media outlets.
Alex Liao
Copyright © 2004 Purdue University
2.
Individually, read the Press Release below.
Murphy & Hamilton, Inc. Press Release - January 30, 2004
New Condominiums Bring Jobs, Controversy
Murphy and Hamilton Building Associates formally announced their next construction project on
Monday. Morgan Place, a thirty-story complex of luxury condominiums, will be built in the West
Loop of Chicago. The Morgan Place Condominiums will be marketed towards executives and
professionals who prefer not to be responsible for the maintenance involved in owning their own
home. The developers will offer three luxury upgrade packages to owners. Murphy and Hamilton
has not formally announced the packages yet, but they often include such luxury items as sub-zero
appliances, marble fireplaces or foyers, garage parking, heated floors, double-paned windows, and
recessed lighting.
A condominium is essentially an apartment that is purchased and then owned by the tenant. The
tenant usually pays a monthly fee to the homeowner’s association for the building, which in return is
responsible for the upkeep of the property’s exterior and common areas. Luxury condos in the city
are often built as high rises. Owners pay a premium for living in the upper stories, since they enjoy a
panoramic view of the city.
Not everyone is thrilled with the impending construction project. Morgan Place reflects the changing
composition of many Chicago neighborhoods. As expensive real estate is constructed in a
neighborhood, and people in a high-income bracket move in, the neighborhood becomes more
desirable. The high demand for housing increases the property value of surrounding houses and
land. Additionally, property taxes increase for current residents. This forces low- and middleincome residents to sell their homes and search for more affordable accommodations elsewhere.
However, the property tax income for the city can increase. Chicago has tried various plans to
increase the development of low- and middle-income housing within the city. The city is also
attempting to design mixed income neighborhoods with various types and sizes of home. Murphy
and Hamilton is committed to involvement in such community development projects after the
completion of Morgan Place.
Morgan Place is expected to have many positive effects on the West Loop neighborhood. It will bring
increased income to existing local businesses and attract new commerce. In addition, the
condominium construction will provide jobs for local workers.
3.
Individually, answer the following questions:
a. What features might impact the value (and therefore purchase cost for a prospective buyer) of a
Morgan Place condominium? Justify your answer.
b. What features or services might affect the price of the monthly homeowners’ fee?
Copyright © 2004 Purdue University
Model-Eliciting Activity (MEA) - Part B
Morgan Place Condominiums - Team Activity
(Estimated Time: 35 minutes)
1.
Read each team member's individual list of features that could impact the value of a
condominium. In your team, construct a more complete list of features, noting how
these features affect the value of a condominium.
2.
In your team, come to consensus about which features on your list should contribute
to the base price versus being elements of a luxury package. Describe the criteria
you are using to sort the features into the base price or luxury categories.
3.
Write the body of a memo to Alex Liao:
a.
Provide a list of condominium features that impact the base price and a list of features that could be
part of the luxury packages. For each feature, justify why it appears on the base price list versus the
luxury features list.
b.
Rank the features that impact the base price according to their magnitude of impact on price. Clearly
indicate the manner in which you are ranking the features.
c.
For each feature that impacts the base price of each condo, describe how information about that
feature will be used in the construction of a pricing model.
Copyright © 2004 Purdue University