Monday, December 6, 2010

Competing in the National Real Estate Challenge

Meet Our Current Students, a continuing series featuring some of our first-year real estate MBA students:

Recently I was fortunate enough to take part in the National Real Estate Challenge, a real estate case competition held annually in Austin, Texas. The competition was held on November 17-18 and was hosted by the McCombs School of Business at the University of Texas. I was part of a six-person team comprised of MBA students in the Graaskamp Center for Real Estate. We competed against nineteen other teams representing leading business schools from around the country. Members of this year’s team were second-year students Chris Hammes, Lindsay Kruger, and Jeff Swhier and first-year students Tess Gruenstein, and Eric Hansch and myself. Lecturer Arif Qureshi was the faculty advisor. The Wisconsin team was one of only a handful of teams that included first-year students.

The case in this year’s competition deviated quite a bit from years past. Usually involving the development of an asset, this year’s case involved the capital restructuring of one firm’s investments in two parcels of lands that were mortgaged by the same lender. One parcel of land was undeveloped and located in a weak market. With the value of the land decreasing, the owner had stopped making debt payments on this parcel. The second parcel was split into two phases, one being undeveloped but entitled for the development of an office building, and on the second sat a recently completed but vacant office building. The second parcel was in a strong market and was expected to begin generating significant cash flow shortly. With loan maturities and loan covenants coming due and no current cash flow, alleviating the lender’s risks as well as keeping the upside potential of the second parcel for the investment firm was the ultimate goal. The case also described a proposal created by the investment firm, laying out their strategy for talks with the lender. Goldman Sachs provided the case which was based on an actual investment they have made.

Each team had 72 hours to read the case and create and complete a PowerPoint presentation explaining the current situation as well as the optimal strategy from the viewpoint of the investment firm. Once the competition began in Texas, the teams were split into groups of five. Each group made a twenty minute presentation before approximately ten real estate professionals who were judges. A ten minute Q&A session followed where the judges tested the participants’ strategy as well as their understanding of the case and the real estate principles involved. One team from each of the five groups was then selected to compete in the final round.

Our team developed a strategy that was quite unique and very different from the investment firm’s proposal. Our strategy involved selling the speculative land and using the proceeds to buy down the risky loans, easing the lender’s concerns. The excess proceeds would be used for tenant improvements on the completed office building, increasing that asset’s potential for significant positive cash flow in the short term. This plan would require no additional equity from investors. Unfortunately, the Wisconsin team did not advance to the finals as we lost out to the eventual champion, the team from Wharton.

While the outcome was not what we had hoped for, the competition was still a very rewarding experience. It allowed us to take what we learn in the classroom and apply it to a real world situation while also forcing us to work with each other’s strengths and weaknesses as a team. An added benefit was meeting and socializing with the students from the other schools as well as the industry professionals. As a first year student, I am excited about the opportunity to compete in this and other case competitions during my remaining time as a student at the Wisconsin School of Business.

Eric Dowling is a first-year MBA student in the James A. Graaskamp Center for Real Estate. Eric plans to combine his previous real estate experience with his MBA education to establish a career in private equity investments.

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