A team of HBS students recently competed in the 2nd annual Real Estate Finance Challenge put on by the University of Texas at Austin’s McComb’s School of Business. The event was held on October 30-31 in Austin.
Touted as the largest graduate real estate finance case competition in the country, 12 of the top business schools in the country participated (Stanford, Wharton, Northwestern, Berkeley, UCLA, USC, Michigan, UT Austin, Cornell, NYU, Columbia and HBS). The HBS team made it past Stanford, Columbia and USC to reach the finals and placed 3rd overall behind UC Berkeley (1st) and UT Austin (2nd). The HBS team consisted of Real Estate Club members AJ Jackson (OG), Robert Sosa (OG), Geoff Wayne (OG), Marin Maydon (OC), Jason Eisenberg (OA) and Casey Nolan (OC).
Goldman Sachs & Co.’s Whitehall Fund provided this year’s case, which cast each student team as a global real estate opportunity fund presented with a retail strip mall center suffering from multiple problems. The property was situated on contaminated soil, had a high vacancy rate, was difficult to subdivide and was surrounded by significant market competition.
In two days, teams had to decide whether to sell, reposition or redevelop the neglected property (named Lighthouse), develop an articulate and thorough argument, and defend their choice in a 20-minute, polished presentation to judges from sponsors such as Bear Stearns, Goldman Sachs, Wells Fargo, Banc of America Securities, Tishman Speyer, Archon Group and Trammell Crow.
The teams had three possible solutions to choose from. They could sell the asset now, and take a $3 million loss on the deal. They could reposition the asset in the market or they could raze the entire site and redevelop the project, which could result in substantial environmental risk. All finalist teams chose to reposition the property. This option required a $20 million capital infusion to both overhaul the property and backfill vacant space before exiting the investment. The strategy focused strongly on leasing the remaining space with attractive credit tenants and making the property a first class retail center.
The HBS team differentiated itself by creating a brand image that included a silhouette of a lighthouse and the catchphrase (Lighthouse – A Beacon for All Shoppers). Although disappointed that their deft marketing skills didn’t allow them to bring home 1st place, the team was pleased with its strong showing against schools with much more established real estate programs. Furthermore, the team was able to celebrate in Austin’s 85 degree weather on 6th Street on the quite lively evening of Halloween.