Case Studies: Development Strategy
(Scott Shapiro and Lynne B. Sagalyn, 2013)
In early 2008, two local Seattle developers had the opportunity to purchase a historic hotel in an off-market deal from a non-profit entity. Though the building was being used as a single room occupancy hotel and would require extensive modifications, the building was solid, the location great, and the price per square foot reasonable. Did this deal justify the risks of acquisition, renovation, and repositioning?
(N. Vanessa Brakhan, Gary Hack, Lynne B. Sagalyn, 2001)
This case examines alternative design and development decisions in large-scale mixed-use projects. Initiated by Sony and executed by Tishman Speyer Properties (TSP), acting as developer and investment partner, Sony Center at Potsdamer Platz is one of Europe’s largest development projects to date and represents a symbolic rebuilding of the core of a city that had been divided for 45 years. In formulating a commercially feasible execution, TSP needs to balance multifaceted design concepts to meet demanding market challenges while satisfying a programmatic agenda set forth by the city of Berlin as a condition of development. Because the center incorporates entertainment, corporate, headquarters, and residential uses on a compact site, the design has to accommodate a spectrum of uses. Drawing on a rich set of graphic materials, the case is presented in CD-ROM format.
(Rona Smith MBA ’98 and Lynne B. Sagalyn, 2000)
This case examines the financial recovery of Canary Wharf in spring 2000, the time of its common-stock offering on the London Stock Exchange. Assuming the role of a prospective investor, individual and institutional, students are asked to take a position on whether or not to invest in the development company. Using primary materials, including in the public offering memorandum, they must evaluate the development team’s overall plan for financing the build-out of the project and determine its strengths and weakness.
(Andrew Levin MBA ’96 and Robert Selsam MS ’70, Boston Properties, 1999, revised 2000)
It is early 1990, a time of significant retrenchment in all sectors of the real estate industry. Commercial property in Manhattan is experiencing double-digit vacancy rates, with the downtown financial districts particularly hard hit. Like other development companies, Boston Properties (BP) is determined to weather this downturn. To that effect, it is seeking new business opportunities, one of which involves fee-based renovation and asset-management work for the United States Postal Service (USPS). The case under review concerns the historic 90 Church Street structure in lower Manhattan; students must determine an appropriate scope of rehabilitation for the aged and neglected building, evaluate the financial feasibility of alterative options, and outline a deal structure for carrying out the project that will meet the objectives of both USPS and BP. To do so, they must grapple with issues of capital deployment, asset management, leasing, and construction management, within an awareness of both the USPS’s and BP’s core competencies.
(Paul Diamond and John Vickers MBA ’85, Tishman Realty & Construction Co., Inc., 1997)
In this case, students must grapple with the strategic decision facing Tishman Realty & Construction. Having been awarded the development rights to a key site in the Times Square redevelopment project — Site 7 at the corner of 42nd Street and Eighth Avenue — based on its plan to build a 193,500-square-foot entertainment/retail center and an 800-plus-room hotel, it now must decide when and if to build the hotel. The development of the entertainment/retail center E-Walk is well underway, and ground-breaking is imminent. Under the terms of the developer designation, Tishman has a seven-year period during which it may build the hotel. Based on the following information given in the case and their own knowledge and investigative work, students are asked to evaluate whether Tishman should build the hotel for its own portfolio and when or whether they sell the developments rights to someone else. Further, they are asked to figure out a financing strategy for the option they select. These recommendations are to be in the form of a presentation to John Tishman, chairman of the board.
(Eric Hadar MBA ’89, Allied Partners Incorporated, 1996)
The protagonist of this case has an opportunity to acquire a potentially profitable development project by bidding on the mortgage note of a distressed and uncompleted conversion of an industrial building into residential loft units. The building is in a prime location in lower Manhattan, and the real estate fundamentals are very favorable; there are, however, tenant issues to resolve and a special zoning approval process to complete before renovations can begin. Students are asked to calculate a bid price for the mortgage note. To do so, they must understand the bricks-and-mortar nature of this development project, value the commercial and residential components of the project, assess the profitability of the project in light of its given development costs, and consider financing alternatives for the project.
(Battery Park City Authority and Maureen McAvey, Deloitte and Touche, 1996)
In the next two weeks, BPCA is to submit to its board of directors a presentation on its choice between competing proposals for the development of a hotel/mixed-use project on one of its sites in this high-profile lower-Manhattan complex. The case presents two quite different, competing proposals: a high-end hotel with an attractive amenity package that is financially risky versus a straight business-class hotel with no amenities but the promise of a richer revenue stream to the authority. Through their prototypical characteristics, these alternatives cast the public sector’s selection of a developer in classic terms: the interplay between public and private purpose. Each proposal offers an attractive, but different, solution to a development opportunity. The students must prepare a business memo recommending one of the proposals and, if necessary to meet public objectives, suggest counterproposals for negotiation with the developer. They must also anticipate how the developer might respond to the authority’s requests. Hence, the task is how to create a “win-win” result for both the developer and the authority.
Marketing and Management Strategy for American Continental Properties's Co-Op/Condominium Acquisition
(Alicia Gains and Donna Gargano, American Continental Properties, Inc., 1994)
This case asks students to develop a marketing and management plan for the disposition of a portfolio of more than 1,700 residential units (in a number of locations in New York) from several failed co-op conversions. Using a financial model developed by ACP, students are to recommend a course of action designed to maximize returns in light of existing rent stabilization regulations, property management demands, and co-op board needs, as well as negative-image and fire-sale problems from earlier efforts to dispose of these distressed assets. To develop a comprehensive strategy, students are given an understanding of the due-diligence process, inventory characteristics and market pricing, and financial implications of alternative assumptions for liquidating the units and maximizing value. The case includes a computer disk for working on the financials.
(Columbia Business School, 1991, 1994)
A packet of case materials that examines the history and nature of the Canary Wharf development project from its inception to its insolvency and workout plan. From a retrospective view, students are asked to analyze what went wrong with the development strategy and why, and what factors contributed to Olympia & York’s loss of the project.
(Battery Park City Authority, 1993)
A consultant to the Battery Park City Authority (BPCA) is asked to prepare a written briefing on the Olympia & York (O&Y) situation for the president and the board members. Under a ground lease from the authority, an O&Y entity owns and operates three of the four towers that make up Manhattan’s World Financial Center. BPCA is concerned that O&Y may be approaching a filing for bankruptcy in the United States. Using primary materials and adopting the consultant’s role, students are asked to develop a briefing paper on BPCA’s position and its options. The issue turns around the authority’s financial risk. From a strategic perspective, the question is, what actions could (and should) this nonprofit government entity take to enhance its control over the project and protect its financial lifeline?