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In the summer of 2013, Whitney DeSoto had just been hired as managing director for real assets at the Overton Pension Fund (OPF). Her task was to provide recommendations to the board of trustees to introduce real estate into the fund's portfolio, which to date had been invested solely in stocks and bonds. Combining her knowledge of modern portfolio theory with her institutional expertise in real estate, DeSoto needed to decide what fraction of the fund should optimally be invested in real assets. She then faced the task of deciding whether to invest in public or private real estate. If she thought private real estate belonged in the portfolio, she would need to identify the best investment strategy, the best vehicle, and ultimately the specific investments to recommend.

• Apply modern portfolio theory to the investment decision of an institutional investor allocating its assets between stocks, bonds, and real estate

• Understand the limits of portfolio theory in a real estate context

• Analyze the benefits/costs of investments in both public and private real estate

• Understand the various vehicles in which one can invest in private real estate

• Argue for a set of investments that offer individual benefits/costs relative to a theoretically ideal investment

Apply modern portfolio theory to the investment decision of an institutional investor allocating its assets between stocks, bonds, and real estate

Understand the limits of portfolio theory in a real estate context

Analyze the benefits/costs of investments in both public and private real estate

Understand the various vehicles in which one can invest in private real estate

Argue for a set of investments that offer individual benefits/costs relative to a theoretically ideal investment

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.

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.

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.

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CSS 1: Accounting and Finance.

Within 18 months of exiting bankruptcy, Kmart's position was sufficiently strong to launch an acquisition of Sears, once the nation's largest retailer and also a core holding of ESL. Looks at a number of compelling issues related to Kmart's bankruptcy, restructuring, and rebirth under the control of ESL, a large hedge fund. Presents some of the key metrics that Eddie Lampert, head of ESL, had available to him as he made two decisions: first, in 2002, to amass a controlling stake in Kmart's defaulted debt during the restructuring; and second, in 2004, to launch a takeover of Sears. The first deal illustrates the decision-making process for a financial buyer, including the downside protection of Kmart's real estate holdings, whereas the second deal represents a traditional strategic acquisition. Illustrates the innovative use of real estate as a “hedge” for ESL in the event that the retail combination does not produce the required financial results. Also focuses on the role of investment bankers and the increasingly important position that hedge funds and LBO funds have carved out in the M&A market.

To outline the explosive growth in assets and influence of alternative investment managers, particularly LBO funds and hedge funds, and the transition of some larger hedge funds from shorter term trading strategies to longer term plays on distressed debt, restructurings, and turnarounds.

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.

Alice Monroe was an admissions officer at the Kellogg School of Management at Northwestern University. It was early January 2017 and Alice had enrolled in Northwestern's 403(b) retirement plan two months earlier. After spending a considerable amount of time examining the mutual funds available through the university's retirement plan, Alice had picked two to invest in: a large-cap equity growth fund and a mid-cap equity fund. (See the related case "Selecting Mutual Funds for Retirement Accounts (A).") Her initial allocations were 50% of her investment dollars in each fund.

Upon further reflection, however, she realized these initial allocations were somewhat simplistic. She recalled, from an investments class she had taken at college, the topic of modern portfolio theory, which held that by adding more funds to her portfolio she might be able to achieve greater diversification and thereby reduce the overall risk of her portfolio and/or achieve a higher expected return. Alice now was considering adding an intermediate-term bond fund and a real estate fund to her retirement account.

She hoped to use modern portfolio theory to prove that these new funds would indeed help her diversify her portfolio. If they did, she would also reassess her portfolio weights to determine the optimal allocation.

Organizational behavior.

Upper-level undergraduate courses, introductory MBA courses.

This case study unveils the story of Al Qatef Holding, a Gulf-based real estate company that was created on the vision of one ambitious businessman. The case begins in 1999 when Faisal Al Qatef decided to pursue his dream of establishing a full-fledged corporation to serve the mounting real estate needs in the Gulf region. Faisal started his company by launching a number of residential and commercial property developments in his home country, Kuwait. During its early years of operation, Al Qatef Holding witnessed an impressive success and an increasing appetite for growth. A couple of years down the road, the founder made the strategic decision to open a new branch in Doha to seize the opportunity that the Qatari real estate market presented at that time. Yet, along with the rapid expansion came the company’s incapacity to deliver on its promises, generating many customer complaints and a damaged reputation owing to poor construction quality and significant delays in project delivery. The case describes the multiple challenges experienced by Al Qatef Holding throughout its evolution and portrays the external and internal dynamics that led to its initial success and subsequent decline.

Assess the internal dynamics and challenges that are associated with the management of small firms; discuss how leadership styles and characteristics affect the organizational climate and employee performance; demonstrate understanding of how corporate culture drives human behavior in the workplace; perform an analysis of firm structure to estimate its impact on individual and organizational outcomes; apply different techniques for enhancing employee motivation in organizations; and evaluate the effectiveness of managerial decisions and provide recommendations for securing corporate survival.

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CSS 6: Human Resource Management.

The learning outcomes of this study are as follows: identify key elements of luxury branding in the context of a new residential real estate brand; select target segment/s and outline the sales pitch for a luxury residential real estate brand; plot the pre-sales stage of the customer journey path (CJP) for a luxury residential real estate brand; and plan a pre-sales customer engagement strategy for a luxury residential real estate brand.

This case enumerates Aldeola de Siolim, Goa’s (ASG) pre-sales promotional challenges. ASG was an upcoming luxury residential property in Goa, India. Venky Infar – the developer of ASG – a family-owned civil construction firm – wanted to diversify into Goa’s vibrant luxury housing market. In India’s housing market, the success of a project often depends on the “pre-sales,” i.e. attracting target customers and maximizing the sales before the construction. V. Rama Rao, the project manager’s task, was challenging because ASG and Venky were new entrants in a mature and competitive market. However, Rao was determined to capture a slice of this lucrative market. The case discusses the following four points to help the students understand the marketing challenges and decision context. First, ASG’s key attractions, second, overview of the Indian real estate market, third, characteristics of Goa’s luxury home market and finally, Customer Journey Path for residential real estate purchase. The case elaborates on the nuances of strategic dilemmas and and presents competitors' practices and emerging consumer trends.

The case will help students analyze and formulate a pre-sales promotional plan for a luxury real estate product. It is suitable for marketing elective courses, e.g. branding, sales management and luxury management.

Teaching notes are available for educators only.

CSS 8: Marketing

Business ethics, corporate social responsibility (CSR), corporate strategy and public administration.

Undergraduate (final year) and Master level course (e.g. MBA, EMBA, Master in management and Master in public administration).

This case accounts the experience of a Malaysian Governmental Development Agency cum City Council, Bintulu Development Authority (BDA), in organizing and strategizing its CSR initiatives so as to discharge its self-interests and societal expectations. BDA was established following the discovery of huge reserves of natural gas and oil offshore in Bintulu, an industrial town in the state of Sarawak, Malaysia. It serves as the governmental instrument to undertake and coordinate development initiatives in Bintulu. There have been several driving forces prompted BDA to be more vigilant in discharging its social obligations along with its statutory obligations as a development agency and municipal services provider. They are, namely, the BDA Ordinance 1978 that governs its legitimate existence, the emergence of social media era that alters the access of people to information, the growing ecological and social concerns, and the unpredictable geopolitical environment that makes the logic of long-term strategic planning questionable. To ensure discharging its statutory and social obligations, BDA articulated vision and mission statements with strong social orientation. Two master development plans, embedded with social and environmental considerations, have guided BDA in translating its strategic mission into real structured development and action plans from 1978 to present. Through institutionalization of CSR elements as part of the organization's core business routines, annual budget allocation, performance control and reward mechanisms, CSR becomes an organizational routine of value to BDA.

This case has three learning objectives: it assists students to understand the contextual background of the case so as to establish the strategic position of CSR initiatives within the organization; it assists students to assess the embeddedness of CSR in an organization's core business routines and its potential sources of value creation; and it encourages students to examine the possible critical factors that enable or impede the initiation and implementation of regular CSR programs in an organization.

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