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Case
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Reference no. 9-899-144
Subject category: Entrepreneurship
Published by: Harvard Business Publishing
Originally published in: 1999
Version: 30 March 2004

Abstract

Anne Shea, assistant vice president at the Curators' Fund (The Fund), is responsible for investing roughly $80 million in real estate assets. Less than three years ago, Anne invested $40 million into a commingled fund run by AMB Institutional Realty Advisors, Inc, a leading pension fund advisor and asset manager. She had been pleased with The Fund's relationship with AMB; investing with AMB provided a cost-effective, value-added means for The Fund to directly own property. Recently, AMB proposed to consolidate all the properties under its management into a REIT and to take the new REIT public. Anne faces a decision: consent to the roll-up by exchanging her shares in the commingled fund for shares in the REIT, or sever ties with AMB by liquidating her position in the commingled fund at a price equal to the fair market value of the assets before the roll-up and public offering. Provides an opportunity to expand students' understanding of the differences between investing in private and publicly held real estate. Intended to be an introductory case on REITs for students with limited or no prior exposure to REITs. Broad discussions of pension fund involvement in real estate, and the evolution of the REIT industry, can be complemented by the narrow discussion of what Anne should do. Introduces several new terms to students, many of them (such as Adjusted Funds From Operations) dealing with the quantitative aspects of analyzing REITs. The most important quantitative lesson to be taught here is the link between 'net operating income' and AFFO. In addition to the focus on REITs, qualitative issues in the case include the prevalence of conflicts-of-interest in most aspects of the highly fragmented real estate industry. The mechanics of a consolidation, the valuation of a management business, and the concept of 'franchise value' are also addressed.
Location:
Other setting(s):
1997

About

Abstract

Anne Shea, assistant vice president at the Curators' Fund (The Fund), is responsible for investing roughly $80 million in real estate assets. Less than three years ago, Anne invested $40 million into a commingled fund run by AMB Institutional Realty Advisors, Inc, a leading pension fund advisor and asset manager. She had been pleased with The Fund's relationship with AMB; investing with AMB provided a cost-effective, value-added means for The Fund to directly own property. Recently, AMB proposed to consolidate all the properties under its management into a REIT and to take the new REIT public. Anne faces a decision: consent to the roll-up by exchanging her shares in the commingled fund for shares in the REIT, or sever ties with AMB by liquidating her position in the commingled fund at a price equal to the fair market value of the assets before the roll-up and public offering. Provides an opportunity to expand students' understanding of the differences between investing in private and publicly held real estate. Intended to be an introductory case on REITs for students with limited or no prior exposure to REITs. Broad discussions of pension fund involvement in real estate, and the evolution of the REIT industry, can be complemented by the narrow discussion of what Anne should do. Introduces several new terms to students, many of them (such as Adjusted Funds From Operations) dealing with the quantitative aspects of analyzing REITs. The most important quantitative lesson to be taught here is the link between 'net operating income' and AFFO. In addition to the focus on REITs, qualitative issues in the case include the prevalence of conflicts-of-interest in most aspects of the highly fragmented real estate industry. The mechanics of a consolidation, the valuation of a management business, and the concept of 'franchise value' are also addressed.

Settings

Location:
Other setting(s):
1997

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