1.You are the CFO of REIT, L.P., a real estate investment company.The CEO has asked you to evaluate a potential acquisition of Homely Properties, LLP, a real estate developer and retailer of home furnishings. Homely owns three properties.One is a partially completed condominium development in Hudson, New York, called "Hudson Haunt."The second property is a large apartment building complex in Manhattan called "Inwood Heights."The third property is a completed townhouse development in Amityville, New York. As part of your due diligence review you learn the following:

1. Hudson Haunt is being built on land formerly used as an apple orchard.The property now owned by Homely was purchased in 2007 from Norman Bates, who subdivided his property and retained a portion on which he still operates an apple orchard.While visiting Hudson Haunt you notice a large truck with the name "Bates Produce" crossing the Hudson Haunt property and exiting on the only public road leading into Hudson Haunt.You ask Homely's General Counsel about this.She tells you not to worry because Bates did not obtain any grant of an easement when he sold the property to Homely.She also tells you: "We are just going to write to him advising that he can't use our road anymore once the buildings are finished.Our road is the only access he has to get from his land to the road, but that's his problem."

1. You review the deed from Bates to Homely conveying the Hudson Haunt property and note it contains the following language:

"Grantee [Homely] hereby covenants that the Property shall be hereinafter held, sold, transferred, conveyed and occupied subject to the restrictions, covenants, obligations and agreements set forth in this Deed.Grantee further covenants that Grantee shall not build, construct, or otherwise permit any buildings or structures within one thousand (1,000) feet, at all points, of the land owned by Grantor [Bates]."

You also note that Homely's building plan includes construction of twenty condominium units along the property line between Bates's property and Homely's site.When you ask the General Counsel about this she says: "We're not concerned about that because courts never enforce those sorts of restrictions because they violate public policy."

1. Homely's Chief Financial Officer advises you that Homely's home furnishings business is largely based on selling furniture to people who buy Homely's condominiums and townhouses.He tells you this line of business has proven very lucrative but that Homely has had difficulty expanding this business because its principal lender, Bad Bank, has a secured interest in all of Homely's furniture inventory, including after-acquired inventory.Despite Homely's requests, Bad Bank has refused to provide any more financing to permit purchase of additional inventory.The CFO finds this very frustrating because the furniture manufacturer from whom Homely purchases furniture is currently offering very attractive pricing and financing.

1. While inspecting the records for Inwood Heights, you notice that fifty percent of the apartments are currently unoccupied.You ask Homely's Chief Financial Officer about this.He tells you that the prior tenants in the vast majority of the unoccupied apartments were evicted for default in payment of rent under the leases.Most of those leases have at least another twelve months remaining under the original term.He believes that Homely will be better off holding the defaulting tenants liable, retaining their security deposits, and seeking to collect the remaining rent owed under those leases, rather than trying to re-lease those apartments at current market rents.

Write a brief memo to your CEO addressing the issues raised in items A-D, identifying any potential (i) problems with the business or (ii) opportunities to enhance the business.