Case | HBS Case Collection | June 2010 (Revised December 2013)

Hang Lung Properties and the Chengdu Decision (A)

by John D. Macomber, Michael Shih-Ta Chen and Keith Chi-Ho Wong

Abstract

A residential real estate developer competes in a heated auction for a prime retail development site in the interior of China during the 2009 boom. Total project cost might be in excess of $1 billion U.S. for over 4,000,000 square feet of building. Hang Lung Properties has enjoyed success in residential building in Hong Kong but has focused on very limited projects in China, notably two retail properties in Shanghai. After a decade in Shanghai the firm decides to enter second-tier Chinese cities including Chengdu, a city of 11 million in interior China. The case covers Hang Lung Properties' due diligence and thought process with respect to anticipated rental income, construction costs, and land costs. The auction includes many other well-capitalized firms and the price escalates. Hang Lung's team must decide whether to participate or withdraw. Students need to use judgment with respect to estimates of key variables including stabilized income, construction cost, and minimum expectations for return on investment in order to prepare their bids.

Keywords: Buildings and Facilities; Decision Choices and Conditions; Investment Return; Geographic Location; Auctions; Bids and Bidding; Infrastructure; Valuation; Real Estate Industry; Chengdu;

Citation:

Macomber, John D., Michael Shih-Ta Chen, and Keith Chi-Ho Wong. "Hang Lung Properties and the Chengdu Decision (A)." Harvard Business School Case 210-089, June 2010. (Revised December 2013.)