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Acquisition Strategy

Fractured Condominium Investment Opportunity: Sierra Vista | Bryant Park Tower | Project Python | 1372 Broadway | The Associate's Task: Financial Tales of Changing Place | Bidding for 1800 L Street | The Mortgage for 1800 L Street | VNO and the EOP: Blackstone Transaction | Zenith Center | Capturing the Chrysler Building | Structuring the Burnswell Deal | Soho Loft Building: Pricing the Entrepreneur's Development Risk | Acme Center | Pacific Gong Pagoda

Fractured Condominium Investment Opportunity: Sierra Vista

(Troy Daniel, Michael Gusich, and Lynne B. Sagalyn, 2012)
Two seasoned investors are contemplating acquiring a fractured condo/apartment investment in a rapidly growing Southwest submarket. Their intuition tells them this is a great opportunity. However, there are many moving parts and a decision needs to be made quickly. This case asks students to make a series of recommendations on selected deal considerations.

Bryant Park Tower

(Nicholas Beinstock MBA ’96, Chris Schlank, and Lynne B. Sagalyn, 2011)
In early 2010, Savanna Investment Management was presented with the opportunity to underwrite the sale of Manhattan's Bryant Park Tower, which had just gone into payment default. In this case, students are asked to evaluate the unstable macroeconomic environment and its impact on the New York real estate market as well the financing options available to Savanna should they proceed with the deal.

Project Python

(Camille Douglas, 2010)
Asia Real Estate Capital, a private real estate investment firm, is under the gun to determine whether to invest $140 million in a joint venture for a residential project in the growing Chinese city of Chongqing. With just four days before the government's land auction, AREC wants to reexamine whether its initial underwriting for Project Python is based on reasonable assumptions about China's growth and Chongqing's booming economy, as well as whether its maximum bid price is justified. In this case students examine whether AREC has sufficient and reliable information to justify its underwriting assumptions, and consider Chinese economic and housing data along with AREC's financial analysis to determine which variables to include when building sensitivity tables.

1372 Broadway

(Lynne B. Sagalyn, 2009)
In the fall of 2008, seasoned real estate investor Lloyd Goldman created a stir with the $274 million purchase of a building in Manhattan's Garment District. The deal, just one of two that closed during the fourth quarter, was completed during a time of market turmoil and uncertain real estate values. Goldman and his investor group closed at a lower price than had originally been negotiated, and secured a buyer-friendly bank loan. In this case students compose a two-page memo addressing how the partnership might lower investment risk and adjust their leasing strategies to optimize returns.

The Associate's Task: Financial Tales of Changing Place

(Lynne B. Sagalyn, 2009)
Jennifer Smith is a seasoned financial analyst for Pioneer Realty Funds, a private equity firm with a new closed-end real estate investment fund that's seeking urban real estate opportunities during 2009's unsettled property market. Smith is considering three properties for the fund. She plans to run the numbers on the properties to create valuation fundamentals and test risk implications and different amounts of leverage through sensitivity analyses, helping her to form investment recommendations for her boss. In this case students consider the analytic tools needed by the analyst as she matches the risk and return profile of each potential investment to the fund's goals. This is the first of a two-part case study. (In the second part, having worked through her analysis of the investment value for several large urban properties, a seasoned analyst at a private equity firm prepares to rerun the analysis based upon a set of financing assumptions. )

Bidding for 1800 L Street

(Lynne B. Sagalyn, 2009)
A mortgage loan secured by 1800 L Street, a Washington, D.C., office building, will be sold to the highest bidder in an all-cash deal, and the firm, Seeker Company Limited Partnership (SCLP), has just 10 days to perform due diligence and construct an offer. While payments on the 180,000-square-foot downtown building's loan have been covered to date, the mortgage is close to turning into a nonperforming credit. In this case students are asked to draft a one-page offer letter on behalf of SCLP after performing analyses based on data about the D.C. office market, tenant agreements, and the loan's history.

The Mortgage for 1800 L Street

(Lynne B. Sagalyn, 2009)
Seeker Company Limited Partnership is considering placing a bid in an auction for a loan secured by an office building at 1800 L Street in Washington, D.C. The all-cash bids are due in just 10 days. While the payments on the loan have been made and the borrower hasn't filed for bankruptcy, the lender has classified the loan as subperforming because of its low debt service coverage ratio. In this case students examine a promissory note, the loan's status and history, and a master-lease agreement before drafting a concise business memo that will address issues such as foreclosure procedure and legal rights.

VNO and the EOP: Blackstone Transaction

(Lynne B. Sagalyn, 2009)
In 2007, Vornado Realty Trust and The Blackstone Group entered a bidding war for the country's largest publicly held office Real Estate Investment Trust, Equity Office Properties Trust. With an office portfolio of 774 buildings located in some of the country's biggest cities, EOP had attracted Vornado and Blackstone for different reasons. Vornado, always a stock-based buyer, held assets for income and long-term appreciation, while Blackstone, always an all-cash buyer, aimed to time the sale of its holdings to create the best returns for its investors. In this case students form teams to analyze the M&A strategies and create a business memo and PowerPoint presentation from the perspective of one of the three parties involved in the bidding war.

Zenith Center

(Lynne B. Sagalyn, 2009)
It's September 2009, and while most commercial real estate investors remain wary, closely held REIT Summitt Investors is considering making opportunistic purchases. At the top of their list is an office building called Zenith Center, located in a major Southwestern US city, which they hoped to purchase through a joint venture between Summitt and a Middle East sovereign fund. Summitt needs to move quickly since the seller, a bank managing foreclosed properties, wants to close the deal by year-end. In this case students create a concise business memo highlighting the due diligence issues to consider and proposing an acquisitions work plan.

Capturing the Chrysler Building

(Rona Smith MBA ’99 and Lynne B. Sagalyn, 1999)
When this icon of skyscrapers becomes available after the death of its owner, Jack Kent Cooke, through a mortgage default of his heirs, Tishman Speyer Properties’s top executives are determined to secure it. A consortium of Japanese banks led by Fuji Bank, Ltd., holds the $250 million of defaulted mortgage debt on the Chrysler Building and has put the asset out to bid. The asset, however, is subject to a long-term ground lease held by tuition-free Cooper Union for the Advancement of Science and Art. With only 30 years remaining, the limited remaining term of the lease significantly affects the valuation of the asset. Gaining an extension of the ground lease becomes a strategic lever for gaining a competitive advantage in the trophy-bidding contest. The case asks students to develop a bid for the note and, most important, outline a strategy (including financial terms) for securing an extension of the ground lease such that Tishman Speyer would gain a clear competitive advantage over all other bidders.

Structuring the Burnswell Deal

(Jeannie Murphy, Greystone Realty Corporation, 1998)
This case presents a situation in which the physical restructuring of the asset is bound up with the financial structuring of the investment partnership. The property consists of two dated but occupied office buildings in an East Coast downtown where demand for Class A space is strong and little supply is currently scheduled to come on line. The properties are under contract for $10 million by a local developer who is seeking institutional money to complete the deal and has approached an institutional investor, Greystone Realty Corporation, to participate in a joint venture. The property is also one of the few remaining underdeveloped parcels on its street. The time is 1997. Greystone has already determined that the fundamentals of this acquisition/redevelopment opportunity look good enough to aggressively pursue the deal. The students must propose a structure for the deal. The local developer who controls the land is experienced, though Greystone’s capital partner is skeptical about its development capabilities. The deal structure must take into consideration the timing, the redevelopment decision (versus the hold-and-sell option), and the partnership’s arrangement with the local developer.

Soho Loft Building: Pricing the Entrepreneur's Development Risk

(Eric D. Hadar MBA ’89 and Lynne B. Sagalyn, 1996)
An entrepreneur has an opportunity to buy the mortgage on a distressed property and complete the conversion of the loft structure to condominium apartments. How much is this opportunity worth?

Acme Center

(John B. Kessler, Greystone Realty Corporation, 1993)
In this case students are asked to develop an acquisition strategy (lease package, valuation analysis, bid price, ownership structure) consistent with the client’s investment goals for a particular office building. The key strategic twist to this analysis is the current tenant’s role as lead tenant and potential buyer holding a right of first refusal on any bids received by the owner. The case exercise calls for consideration of negotiation strategy and analysis of property fundamentals.

Pacific Gong Pagoda

(Susan L. Baker MBA ’91, Greystone Realty Corporation, 1992)
This case presents the analyst with what seems to be a typical task — evaluating and pricing a potential property acquisition; the case problem, however, is atypical because it requires valuation on the basis of a leveraged-leasing structure. Since there are no hard-and-fast rules for the valuation methodology, the situation calls for fast learning and entrepreneurial thinking. Students are asked to prepare a presentation to investment committee members who will need to be educated about the pricing and the fit of the potential acquisition with the fund’s goal of portfolio diversification.