Bullard Houses Pre-Negotiation

Pre-Negotiation Plan for The Bullard Houses (Role of Buyer) Justine Mensik October 15, 2014

Summary of Negotiation In this negotiation, we have the seller of the Bullard Houses, Downtown, Inc. It is a corporation that was formed eight years ago by seven of James Bullard’s descendants, for the purpose of saving the houses from destruction. We also have a buyer, Absentia Ltd., being represented by a senior partner in Jones & Jones, a leading real estate firm in Gotham City. In this negotiation, the Bullard Houses are up for sale, and the buyer and seller will be negotiating terms of a potential sale. Issues As the buyer, there are a few issues that will arise in this negotiation. An example of one would be the price that my client, Absentia Ltd., would be willing to pay. Absentia Ltd. is controlled by the Conrad Milton Hotel Group via a Bahamian blind trust, so the purchase of these Bullard Houses would ultimately lead to the development and construction of a Milton hotel. The existing houses will serve as a hotel lobby and public room, but the actual hotel tower will be built in the current garden area. Therefore, it is important to get this property for a good deal, since a copious amount of money will have to be poured into the building of the tower. I recognized this issue in determining my goals for this negotiation, which is the first step in developing and executing a negotiation strategy. With one of my goals being to develop a new hotel, part of achieving this goal would be to get the property for a good price. An additional issue for me (as the buyer) would be to maintain confidentiality in regards to these hotel plans. It is important that I do not give any indication that the buyer’s intention is to convert the houses into a hotel. One reason for the confidentiality is that the price of this site will rise dramatically, as well as the price of my alternative site, if the hotel plans become public 1

Pre-Negotiation Plan for The Bullard Houses (Role of Buyer) Justine Mensik October 15, 2014

knowledge. Additionally, if other competing developers discovered Milton’s plans early, it would give these groups more time to develop a more attractive plan to pitch to the seller. I determined this was an issue in the process of setting goals for the negotiation, and maintaining confidentiality would help me achieve the goal of maintaining control of the negotiation. This differs from my first goal, since it is more of a procedural goal. There are a number of potential issues for the other party. For one, Downtown, Inc. could be incredibly concerned with preserving these houses, and could see their conversion to a hotel as the opposite of preservation. Additionally, the seller may want to sell these houses with the promise that they will remain residential properties. Also, the seller could be concerned with their reputation during this sale. They may be concerned with selling the property to a well-known, reputable buyer, so as to avoid negative press. In addition to all of this, money could be a large issue for the seller. As mentioned in the instructions, it is costing Downtown a lot of money to simply hold onto the property, and its shareholders have no interest in developing the property themselves. Therefore, it is likely that Downtown is looking to make a solid profit, in order to offset their high costs of holding the property. Based on all of these factors, I will take a moderate stance in this negotiation. This property represents prime real estate, and owning a hotel in Gotham City would be incredibly lucrative for my client (it was mentioned that there is a shortage of hotel rooms in the city). Therefore, it will be important for me to come in with a moderate opening offer, aggressive enough to show that I will not be manipulated, but mild enough to show that I am willing to make concessions to get the deal done. I have to keep the real intentions and plans for this property a secret, so I will avoid any hostility or belligerence. Displaying either of these 2

Pre-Negotiation Plan for The Bullard Houses (Role of Buyer) Justine Mensik October 15, 2014

behaviors may indicate that I am indeed hiding something, and will make the seller suspicious. Bargaining Range In this negotiation, my BATNA is an alternative site that is available for $20 million. While The Bullard Houses represent prime real estate, there are only so many concessions that my client can make. As previously mentioned, my client is inevitably going to be spending a lot of money to develop a hotel, and will not pay an absurdly high amount for the property on which to build. I believe this is a relatively strong BATNA, and will give my client an advantage in the negotiation. In the general information given, it was mentioned that there is a shortage of hotels in Gotham City. While it is best to develop a hotel at the Bullard Houses site, any site for a hotel will likely be profitable in this city. For this negotiation, my target point will be $19 million, and my reservation price will be $24 million. I will make my initial offer marginally below my target point. In doing this, I am attempting to create a larger bargaining zone for the negotiation to take place in. This will create more distance between my target point and resistance point, and the desired result will be a settlement point that lies closer to my target. In addition to this, the target point of $19 million would be cheaper and more desirable than the cost of my alternative site, which is $20 million. Problems & Planning One very obvious potential problem would be that Downtown Inc. and other bidders discover my client’s plans to turn this property from residential to commercial. I believe that preservation of the houses is very important to the seller, so it would be a huge setback if the plans for a hotel were made public. Another problem would be if the 3

Pre-Negotiation Plan for The Bullard Houses (Role of Buyer) Justine Mensik October 15, 2014

seller is incredibly persistent in asking questions and discovering my client’s intentions for the property during the negotiation. I do want to be ethical and as honest as possible, but a persistent and inquisitive seller will make that very difficult for me as the buyer. An additional roadblock for this negotiation is the Zoning Board, which will have to rezone the site from mixed residential and commercial to high-rise commercial. In order to counteract these roadblocks, I will fan and emphasize existing controversy in Gotham City. There is considerable anger with mentioned plans to restore the Houses for highincome families. I can take some attention away from my client and magnify any resentment or protest against these plans. Not only will this distract attention from my client, it could influence the Zoning Board to approve plans for a hotel. As opposed to private housing for wealthy individuals, a hotel will boost the city’s economy by bringing in some tourist revenue. Moreover, my client would make the hotel lobby and bars open to the public, unlike the private residences. Overall, I will pitch this sale as a politically and economically viable alternative to a luxury housing sale. During the negotiation, I will ask the seller: 1) how do you validate the price for which you’re selling these Houses? 2) Aside from the optimal price, what else are you trying to obtain from this sale? 3) In order to complete the sale, would you be willing to make any specific, smaller deals? Conflict Strategies Per the Dual Concerns Model, I will adopt a competitive strategy in this negotiation. While I do want to be cooperative during the negotiation, my ultimate goal is to serve my client and achieve goals set by the client. The substantive outcome (getting the hotel for a good price, and maintaining anonymity) is more important 4

Pre-Negotiation Plan for The Bullard Houses (Role of Buyer) Justine Mensik October 15, 2014

than the relational outcome. Once the sale is done, it isn’t necessary for my client to maintain a relationship with Downtown, Inc, which is the nature of most real estate transactions. I believe that Downtown, Inc. will be approaching this negotiation with a competitive strategy as well. It is not important for them to foster a relationship with my client. They will be more concerned with furthering their own substantive interests in this negotiation. There have been and likely will be other bids and negotiations for this property, so it is probably unimportant for Downtown to foster a meaningful relationship with my client, who is in the same pool of bidders.

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