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Real Estate Entrepreneurship

CASE STUDY #2 ASSIGNMENT

The company president took the Case Study #1 memo that you prepared under advisement and came to several realizations, some of which are good, others will require that you do more work before a decision can be made.

• First, the company president has decided that he/she likes your work product but is unsure as to a holding period and overall strategy for the property that you have recommended. He/she has asked you to analyze your project with respect to both short and long -term holding period strategies and make a recommendation.

• The president has also realized that the company has limited resources and, as such, does not wish to “tie up” its cash for a lengthy duration. He/she is happy to fund the project’s development and stabilization on an unleveraged basis, but, if it is to be held (as opposed to sold upon completion), debt financing will be required. As such, your long-term analysis and any associated recommendation must take into consideration the effects of debt financing (i.e., the borrowing of money).

• The president would like you to continue analyzing the project of your choice and develop a recommendation around selling the property upon completion and stabilization vs. holding it over a lengthier time period. The latter will require you to analyze the project on a leveraged basis.

• Because both a short-term sale and a financing and long-term hold of the property are highly likely to produce a substantial one-time cash flow, your analysis mut take into consideration suggested use of proceeds.

The company president has asked you to further analyze the opportunity you have recommended via Case Study #1 and prepare another memo recommending a strategy. He/she has also asked you to re-affirm or adjust (if necessary) the investment strategy that you articulated in Case Study #1, including your view on duration (i.e., short-term “build and sell” or long-term “build and hold”). You must also address all relevant financial return metrics, risks, and mitigating factors.

You have received several term sheets from lenders regarding short and long-term financing. Indicative terms are as follows:

Taking this into consideration, your job is to prepare another memo summarizing your recommendations along with any accompanying analyses in respect of the above.

In light of direction that you now have from the company president, you may have changed your mind relative to the recommendations that you proposed in your Case Study #1 memo. You may also believe that the opportunities should be subjected to different and/or additional investment objectives than those that he/she has loosely defined. If this is the case, address these issues in your Case Study #2 memo and provide appropriate support for your position(s).