assAnd2

assAnd
revised August 26, 1998

Babson College
The FW Olin Graduate School of Management

BASICS OF REAL ESTATE DEVELOPMENT

Case: Anderson Street

This is our first case, and we will use it to begin to explore the basic "Real Estate Development Process" that will be used throughout the course and which guides Real Estate development in the "real world".

This case concerns an individual who is searching for his first real estate development project -- an apartment and income property. He is seeking to acquire and renovate such a property on Beacon Hill. The case traces in detail the early steps in his search for the property, and his efforts to finance the project. As you prepare this case, please think about these issues:

How did Leonard search for his property? From whom did he receive help? Why?
Why did he focus his search on Beacon Hill? Was this a good choice for him? Why?
When he located the Anderson Street property, what steps did he take to analyze it? To plan its redevelopment? To finance it? Did he take the right steps? Did he carry them out well? What projections should he make?
If you had gone ahead with this deal, what else would you have to do well to make it a success?

This case focuses principally on the beginning of the Real Estate Development process. Other cases will focus on later steps in the process. In this way we will seek to explore the process as a whole, and to fit each case to it, as a step towards learning to make good decisions over the whole process. In this light, please consider these issues as you prepare for the first case discussion:

How does one plan and conduct an effective search for a development property?
How does one assess the development feasibility and the economic feasibility of a project?
How does one go about obtaining funding for a project?
How does one "Make Money" in real estate?

These issues will arise again and again as we look at various other cases and situations -- so we want to get a good handle on them right away.

Please participate to the discussion on e-campus.

Please also participate in the e-campus polling.

Assignment: There are data in the case that permit you to create a "set-up" -- including a pro-forma P&L -- analyzing the income, expenses profitability, return, and value of this property. Please create an EXCEL spreadsheet P&L for 5 years of operations. Please include calculation of the cash flow and NPV of this property, based on buying it at a price you feel you can negotiate, and holding it for five years before re-selling it at a price nine-times fifth year expected pre-tax net income.

To help you do this, we have put a started spreadsheet -- with errors all over the place -- into e-campus under Assignments. Go get it and use it to help you get started!

You will submit a DRAFT improved version of this spreadsheet before class -- but we will not grade the Draft.

Nine days after the class you will submit a revised, final version of your projections and valuation -- by inserting a corrected spreadsheet into e-campus -- with a 1/2-page memo to a prospective "client" who you are assisting in valuing this property, recommending the action you believe s/he should take investing in this property.