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The Hotel Perennial case puts students in the shoes of Dan Jameson, founder and CEO of a boutique real estate private equity firm called EL Investments (ELI), as he wrestles with the decision of whether or not to acquire the distressed Hotel Perennial, a 194-room hotel on the north side of Chicago, Illinois. When making the investment decision, Jameson (and students) must consider various factors: What is ELI's implicit investment strategy, and what are the firm's core competencies? What are Jameson's goals for growing ELI, and how might the acquisition of the Hotel Perennial fit with those goals? What opportunities and challenges might ELI face if it decides to acquire the hotel? How much would a buyer likely have to pay for the Hotel Perennial to achieve an attractive return? In addition to containing a hotel valuation and modeling exercise, the Hotel Perennial case also exposes students to several real estate industry concepts and terminologies, including those regarding the hotel sector, equity sourcing, and distressed investing. The case material assumes that students have taken an introductory real estate finance course or have relevant work experience.

-Show students how an investment decision can go beyond simply “crunching numbers” and projecting an internal rate of return to include considering an individual's or firm's strategic objectives and core competencies. Students should think through how to

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 case covers the framework and process to determine fair value as specified in International Financial Reporting Standards (IFRS) 13. It illustrates an instance in which auditors interpret the concept of fair value to be consistent with other principles in standards such as the principle of prudence in the conceptual framework. In addition, a lot of the discussion in the case is applicable to accounting education in any regulatory jurisdictions given the convergence of US generally accepted accounting principles (GAAP) and IFRS 13. In addition, while fair value accounting may have been designed to give investors more useful information, in practise it could involve highly subjective judgement and the resulting implementation may be affected by incentives of different stakeholders. The CK Tang’s case provides an excellent opportunity to discuss incentives of varies parties in determining the fair value in financial reporting decisions. In short, this case could be a good jumping-off point to talk about management and auditors’ incentives in financial reporting in general.

Publicly available information (e.g. financial reporting standards, corporate announcements and reports, news reports) was used as the basis for this case.

The case centres on an iconic Singaporean integrated retailing and property landlord entity: Tang holdings. As part of its succession planning, the company’s founding family decided to take its listing arm, C.K. Tang Limited (CK Tang hereafter), private in May 2006. The Tang brothers, who represented the controlling family, initiated several attempts to delist the company. The minority shareholders of CK Tang were unhappy that the offer price was below the net asset value of the company. The minority shareholders also highlighted that the reported fair value of the flagship Tang Plaza complex understated its highest and best use and might not possibly comply with International Financial Reporting Standards (IFRS) 13.

The case can be used for class discussions with undergraduate students or master students in intermediate accounting courses.

Stanley Cirano owns two retail shopping centers in suburban Chicago. With interest rates near all-time lows in late 2015, Cirano believed it was an opportune time to consider the debt financing of his properties. Although the properties were similar in many respects, the lenders willing to lend against each property were offering noticeably different terms. Cirano had to consider not only the interest rate and size of each potential loan, but also the various fees, potential prepayment penalties, and variations in recourse to make the best decision for each property.

After completing this case, students should be able to: identify and compute relevant cash flows in relation to a real estate project and compute the net present value (NPV). Determine the target return or cost of capital (by looking at historical economic indicators). Design or formulate a sensitivity analysis to determine the drivers of the project value. Evaluate real estate and other investments taking qualitative and quantitative factors into consideration. Demonstrate the computation of a break-even rate to determine the minimum or maximum revenue or cost required for a project to be viable.

This case study is about the Golden Beak Securities Pension Fund that wanted to invest in a Hostel Project in one of the universities in Ghana. Most universities in Ghana faced an acute shortage of on-campus accommodation. Also, the Government of Ghana, in 2017, implemented a programme to make Senior High School in Ghana free. This was expected to increase the number of students who will enter the existing universities. The project was therefore seen as strategic, as it would help ease the pressure of on-campus accommodation while providing diversification for the pension fund. As part of the investment committee’s (IC) quest to improve the skill set available to it, especially in relation to real estate investments, Esi Abebrese was appointed as one of the members of the IC of GSB. Her main task was to collect information on key macroeconomic variables, as well as granular information on project costs and revenues and conduct investment appraisal. Esi was scheduled to make a presentation to the IC on the 15th of October 2019 following which the Committee will debate and make a decision. The project had an estimated cost of GH¢52m with a total number of 3,424 student beds and ancillary facilities. Undertaking the project required moving funds from investments in money market securities with one of the banks in Ghana. The investments in the money market securities were currently yielding about 16% a year. The determination of the cost of capital was critical and Esi and Nana eventually settled on a long-term weighted average cost of capital of 14%. This was after considering the trend of inflation, monetary policy rates, treasury rates, stock market returns and a report on returns on commercial real estate properties in Ghana. An exit capitalisation rate of 20% was also estimated for the purposes of determining the value of the property at the end of the investment horizon. Esi also obtained estimates of cost and revenue for the project and proceeded to carry out a feasibility analysis on the project. This consisted of an NPV analysis and sensitivity analysis on various factors to determine the drivers of the project value. The IC had to take several factors (both quantitative and qualitative) into consideration before making a decision. Esi believed that these factors included the diversification of the fund’s assets, the return on investment, potential oversupply of hostel accommodation, the social responsibility of providing student accommodation and the impact of any prolonged shutdown of the university.

Masters/advanced undergraduate.

Teaching Notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.

CSS 1: Accounting and Finance.

In 2010 Drive Property Solutions, a special servicing firm in Chicago, had partnered with Spiner Capital to win an FDIC auction of distressed debt. Included in that auction was the defaulted mortgage note on Northwinds Community Crossing, a retail strip mall in suburban Savannah, Georgia, which had been in default since November 2009. Sam Schey, an asset manager at Drive, needed to decide how to maximize recoveries from the nonperforming loan.

Property development, the built environment and privatisation.

Undergraduate and MA level property development courses, modules covering privatisation within undergraduate, MBA and MA level management programmes.

Property development is complex and diverse. It involves many agents with diverse roles, strategies and actions that affect the return. In a way, privatisation reduces government's financial burdens and offers ease of procedures to agents. This case study investigates privatisation of property development projects by a local authority in Kuala Lumpur, Malaysia. In particular, the study focuses on modes of privatisation (MOP) and the extent to which it affects the return of the projects. The MOP studied are the land swap, land lease and the joint venture development on 15 selected privatisation projects.

Students are expected to be able to understand the MOP for land development projects using Malaysia as an example; evaluate the strengths and weaknesses of these MOP; assess the benefits and impacts to the local Malaysian authority, landowners and land developers of MOP; and apply suitable MOP to alternative development projects.

Teaching note.

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.

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 is focused to meet the following learning objectives: the readers will be able to recall basic cash flow estimation concepts; and the readers will be able to explain various features of capital cash flow (CCF). The participants will be able to implement the CCF model in real estate firm valuation. The participants will be able to compare CCF and free cash flow to the firm (FCFF) models. The participants will be able to evaluate the benefits of CCF over FCFF. The readers will be able to construct the CCF valuation model for firm valuation.

On 19th April 2019, Mr Kai, an analyst tracking real estate firms was excited to present to his team a new robust technique of firm valuation suitable for real estate companies, namely, the CCF technique and was also keen to deliberate on its application. Though the investment scope using this technique could be located in Godrej properties (GP), a reputed brand and the largest listed real estate developer by sales in 2018, yet, he was concerned about the assumptions of growth of real estate industry in India, in general, and the GP in particular. Importantly, this was because the real estate market in India was undergoing many structural changes. For instance, the buyers’ preferences were changing and unsold inventory in the industry was at its peak. Under these market conditions, an announcement was made by GP about a target return on equity of 20% in 2018–2023 expecting a dominant place in the real estate market in India, which also carried the threat of jeopardizing the reputation of GP, if under any circumstance the target was not accomplished.

Masters program.

Teaching notes are available for educators only.

CSS: 11 Strategy.