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In April 2012 Bill Nichols, a financial analyst at the real estate investment firm Koenig Capital, was about to enter a unique lease renegotiation. One of Koenig's tenants, Hasperat Inc., had sixteen years left on its long-term lease of the Kelley Building, a 165,000-square-foot office building in downtown Cleveland. The lease contained a clause giving Hasperat the option to buy the Kelley Building from Koenig. When Nichols tried to place a mortgage on the property to take advantage of low interest rates, he learned that the existence of this option in the lease contract prevented lenders from offering Koenig their lowest rates. As a result, Nichols had been tasked with renegotiating the lease to remove the option clause. This unexpected event offered Nichols the opportunity to use his financial skills. He needed to calculate the fair value of the purchase option to be able to justify to his superiors by how much they should compensate Hasperat. Students will step into the role of Bill Nichols and apply real options modeling techniques to value the purchase option in Hasperat's lease.

After reading and analyzing the case, students will be able to:

• Apply real options theory to the valuation of a purchase option in a commercial real estate lease

• Identify the common mistakes in applying traditional discounted cash flow (DCF) analysis to financial problems with option components

Apply real options theory to the valuation of a purchase option in a commercial real estate lease

Identify the common mistakes in applying traditional discounted cash flow (DCF) analysis to financial problems with option components

This study aims to provide students an opportunity to analyze the financial performance of a publicly listed real estate company and estimate its instinct value by applying appropriate financial models and approaches.

Three major valuation models/approaches generated by financial theory and practice to estimate the intrinsic value of a security: discounting cash-flows valuation (DCF and NPV) – valuation through adjusted net asset and liquidation value (NAV) – relative valuation through price and value multiples (valuation multiple analysis and precedent transactions analysis). Wholly owned subsidiaries versus and joint venture ones.

Analyze financial information of all segments in a multiple-business firm, and apply suitable financial models and approaches among net asset value model (NAV), discounted cash flow (DCF) or net present value (NPV) model, valuation multiple analysis and precedent transactions analysis to estimate the intrinsic value of the whole firm.

This decision-based case allows students to explore the business valuation process for a public listed real estate company, Alexander & Baldwin, Inc. (NYSE: ALEX). Based on financial statements analysis and forward-looking financial expectation on ALEX, this case elevates students' understanding and practice of valuating this multiple-business firms by applying appropriate financial models and approaches among NAV, DCF or NPV, valuation multiple analysis and precedent transactions analysis and enable students to make their investment decisions of buying, holding or selling the company’s stocks.

This case is most appropriate for graduate courses such as corporate finance, investments, personal finance, real estate finance and financial markets and institutes.

The case puts students in the position of a young analyst working for a Chicago-based student housing developer. The premise is that the analyst, Tricia, must prepare a report for the firm's partners detailing her recommendations regarding a variety of green upgrades for a potential value-added acquisition project. The redevelopment project is based on two multifamily student housing redevelopment projects in Denton, Texas (led by Iconic Development). The case focuses solely on the operating expense reduction that took place at the property and does not address potential changes to property revenues.

The objective of the case is to provide a framework for students to evaluate various sustainable retrofitting projects in a multifamily property. Students must analyze the energy impact, cost, financial returns, and environmental impact of each potential property upgrade, and then decide which upgrades to recommend to management.

In early December 2013, Roxann Biller, Associate at the Chicago-based private equity firm Delta Quantitative Real Estate Capital, was asked to assess the risk associated with the firm's first potential overseas investment. Haifu Sentā Gendaino (HSG) was a large multi-tenant logistics property located in the Gaikando area of Tokyo. High-quality tenants currently occupied the property, so at first glance the risks of investing in the property seemed minimal. However, Biller knew that she had to consider the potential drawbacks. This would mean gaining a better understanding of each tenant, trying to forecast the future condition of the Tokyo logistics market, and considering what new risks her firm would face because the property's cash flows were in a foreign currency.

Wildcat Capital Investors is a small real estate private equity company. Its MBA intern, Jessica Zaski, is asked to develop a financial model for the purchase of Financial Commons, a 90,000 square foot office building in suburban Chicago. By simple metrics, the property seems to be a good value, but with credit conditions tight, Jessica must consider whether outside investors would be comfortable with the risks of investing in the midst of a severe commercial real estate downturn. Wildcat is designed to give students exposure to both the quantitative and qualitative aspects of investing in commercial real estate through a private equity structure. Beyond the numbers, the case allows for a discussion of the process of finding suitable real estate investments. The importance of the simultaneous negotiations that Wildcat must have with the seller, the lender, and the outside investor can be emphasized.

By working through the financial models, students will take a given set of assumptions and analyze the cash flows expected to be received by the equity partners of Financial Commons. With a given deal structure, the students can then model the cash flow to both outside equity investors and Wildcat, learning the mechanics of private equity. The model will allow students to investigate how the variations in the underlying assumptions affect returns to the property and to the investors.

Aurelia Dimas had been sent to investigate the various properties being offered by the State of California in the form of a sale-leaseback agreement. The opportunity was perfect for her firm, Orrington Financial Partners, which had recently expanded its fixed-income portfolio to include real estate. The wide range of offerings in the Golden State Portfolio provided both diversification and stability over a period of decades. She had spent the last week walking the halls of each and every building to see the offering first hand. Now the task of valuing the portfolio rested on her shoulders.

By reading and analyzing this case, students will be exposed to real estate valuation and understand the issues with a sale-leaseback investment. The objectives are obtained by requiring students to justify how and why they make adjustments to the cash flow forecasts provided to them by a real estate advisory firm, explain their methodology for arriving at a specific value for a piece (or a portfolio) of commercial property, and debate the pros and cons of a sale-leaseback structure.

In April 1992, this multinational consumer foods and beverages company is the focus of takeover rumors, which have prompted an assessment of the firm's returns. The student must choose among the principal methods of estimating the weighted-average cost of capital (WACC) for GrandMet and its three main business segments, and must then produce WACC estimates in order to evaluate the firm's performance.

Are hedge funds heroes or villains? Management of Blockbuster, Time Warner, Six Flags, Knight-Ridder, and Bally Total Fitness might prefer the “villain” appellation, but Enron, WorldCom, Tyco, and HealthSouth shareholders might view management as the real villains and hedge funds as vehicles to oust incompetent corporate managers before they run companies into the ground or steal them through fraudulent transactions. Could the pressure exerted by activist hedge funds on targeted companies result in increased share prices, management accountability, and better communication with shareholders? Or does it distract management from its primary goal of enhancing long-term shareholder value?

To determine the benefits and disadvantages of activist hedge fund activity from the perspective of corporate management and shareholders; to examine if a hedge fund's suggested corporate restructuring could create greater shareholder value; and to explain the changing roles and perspectives of hedge funds.

Louise Dejan was a successful real estate developer operating throughout northeast England. The city council of her hometown of Newcastle faced a problem common to many areas: how to encourage private investment into less attractive areas. In August 2012, Newcastle's East Pilgrim Street neighborhood remained an eyesore, despite its great location between the city's Central Station and city hall. It was a natural place for Dejan to build a typical urban office building over street-level retail building. On a particularly attractive site sat an asbestos-contaminated building, which was a former home to the Bank of England. The costs of remediation had kept developers like Dejan away for many years. To encourage redevelopment, the Newcastle City Council had recently designated the East Pilgrim Street neighborhood an Accelerated Development Zone (ADZ). This gave Dejan access to Tax Increment Financing (TIF), a method by which public funds could be spent to encourage private sector redevelopment of designated parcels of land. After studying the details of TIF and the financial projections of a potential new development, Dejan had to decide whether she should be the first to redevelop property in this well-located but seemingly forgotten neighborhood.

An estimate of the fair rate of return on capital is a critical input into tariff regulation. A too high estimate will lead to high tariffs for consumers; a too low estimate will not provide adequate incentives for investment. The Airport Economic Regulatory Authority of India has issued a consultation paper for finalizing the norms and procedure for estimating the fair rate of return. It now needs to reconcile the differing view and approaches of different stakeholders.