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27 Dec 2024, 12:09
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(A) Plan to demolish older, shorter buildings in their portfolio if the restrictions take effect.
This does not address the anticipated height restrictions directly. Demolishing shorter buildings might free up space, but the height restrictions would still apply to new developments. A is not the best option.
(B) Secure long-term construction contracts at fixed costs for materials and labor.
While this could reduce costs, it does not address the issue of height restrictions, which directly limit profitability. B is not the most effective option.
(C) Invest in building technologies that allow for faster construction of high-rises.
Faster construction might allow the developer to complete projects before the restrictions are imposed. However, this option assumes that restrictions will take effect imminently and does not provide a long-term solution. C is less effective than other options.
(D) Develop several taller buildings in areas currently without height restrictions.
This option directly addresses the anticipated restrictions. By constructing taller buildings now, the developer can maximize profitability on these projects before the restrictions are imposed. This is a proactive and effective strategy to minimize future impacts. D is a strong option.
(E) Collaborate with other developers to lobby against the imposition of height restrictions.
While this could potentially prevent the restrictions, it is uncertain whether lobbying efforts will succeed. This approach is riskier than taking immediate, tangible action. E is less effective than D.
Ans D
This does not address the anticipated height restrictions directly. Demolishing shorter buildings might free up space, but the height restrictions would still apply to new developments. A is not the best option.
(B) Secure long-term construction contracts at fixed costs for materials and labor.
While this could reduce costs, it does not address the issue of height restrictions, which directly limit profitability. B is not the most effective option.
(C) Invest in building technologies that allow for faster construction of high-rises.
Faster construction might allow the developer to complete projects before the restrictions are imposed. However, this option assumes that restrictions will take effect imminently and does not provide a long-term solution. C is less effective than other options.
(D) Develop several taller buildings in areas currently without height restrictions.
This option directly addresses the anticipated restrictions. By constructing taller buildings now, the developer can maximize profitability on these projects before the restrictions are imposed. This is a proactive and effective strategy to minimize future impacts. D is a strong option.
(E) Collaborate with other developers to lobby against the imposition of height restrictions.
While this could potentially prevent the restrictions, it is uncertain whether lobbying efforts will succeed. This approach is riskier than taking immediate, tangible action. E is less effective than D.
Ans D
27 Dec 2024, 12:28
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A. Incorrect. That may be a costly undertaking and we do not even know whether the new regulations will allow construction of taller buildings
B. Incorrect. Long term construction permits will not be of any value if the developer cannot construct those tall buildings
C. Incorrect. Investing is okay but they have to go beyond investing and construct
D. Correct. Constructing now when the conditions allow them to do so is the best course of action
E. Incorrect. Collaboration may or may not work
B. Incorrect. Long term construction permits will not be of any value if the developer cannot construct those tall buildings
C. Incorrect. Investing is okay but they have to go beyond investing and construct
D. Correct. Constructing now when the conditions allow them to do so is the best course of action
E. Incorrect. Collaboration may or may not work
Bunuel
27 Dec 2024, 12:57
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Bunuel
If the developer could do any of the following and wants to select the most effective course of action, which should the developer do now?
We want to minimize the impact on profitability, so let's try to break it down into numbers.
Let C be the avg cost price and S be the avg selling price of any high rise currently and developers are building n units with overall profitability P, which means,
(C - S)*n = P
Now we are told than n will decrease in future because of height restrictions and we want to minimize the reduction in P, which is only possible if we increase (C - S) ie. if number of units are decreasing then one way forward for the developer can be to increase profit per unit, leading to minimal damage on overall profitability.
(A) Plan to demolish older, shorter buildings in their portfolio if the restrictions take effect. This is an interesting proposition leading to some benefit gain from rebuilding shorter buildings but even then this would be just a one time activity after which the developer would start seeing impact on his profitability in his new projects or let's say the developer doesn't have any shorter buildings then this action doesn't even help him directly.
(B) Secure long-term construction contracts at fixed costs for materials and labor. This seems inline with our initial idea that if he tries to reduce his cost by fixing them and by law of nature we can assume that sales price would eventually go up in future even due to something as raw as inflation then his profit margin per unit will gradually increase in the longer run leading to better profit returns even after the restrictions are in place. So this is definitely something he can focus as his next steps to reduce the impact of restrictions on his overall profits.
(C) Invest in building technologies that allow for faster construction of high-rises. This seems to be too extreme of an idea for something which will eventually be outdated as soon as the restrictions are in place, so better not invest here.
(D) Develop several taller buildings in areas currently without height restrictions. Another good idea but with a short term benefit. If the developer already has enough budget, approvals and logistics to develop these buildings in these areas he will anyways do it with or without restrictions in place. And in the longer run he would still be impacted once the restriction is in place with no actionable plan to minimize impact on his profits which would get hit if he continues with this strategy.
(E) Collaborate with other developers to lobby against the imposition of height restrictions. Definitely something he should do, but is this something he can confidently rely upon when there are so many unknown parameters involved? Lot of political angles which are out of his control can impact the final outcome of this strategy so it would better for him to ponder on the controllable parameters and leverage them to the best of his capacity.
Answer: B
