Technical Note on Financial Leverage in Real Estate

Charles F. Wu; Arthur I Segel

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Technical Note | HBS Case Collection | August 2007 (Revised April 2012)

Technical Note on Financial Leverage in Real Estate

by Charles F. Wu and Arthur I Segel

Abstract

Demonstrates the accelerating impact of leverage on returns under differing scenarios of property performance. The performance scenarios represent two points in time: the inception of the investment and the liquidation.

Keywords: Property; Investment; Real Estate Industry;

Format: Print

5 pages

Educators Purchase

Citation:

Wu, Charles F., and Arthur I Segel. "Technical Note on Financial Leverage in Real Estate." Harvard Business School Technical Note 208-041, August 2007. (Revised April 2012.)

About the Authors

Charles F. Wu

Senior Lecturer of Business Administration

Finance

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Arthur I Segel

Poorvu Family Professor of Management Practice

Finance

Entrepreneurial Management

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Case | HBS Case Collection | August 2018 (Revised November 2018)

Brooklyn Lodgers: 78 South Third St., Brooklyn, NY

Charles F. Wu, Jackie Bereiter and Signe Conway

Nathalie Parizat and her husband Hugo were contemplating a new real estate investment. For two years they had been frustrated by and lamenting their situation of paying high rents to third parties while the couple had idle cash in the bank. They also were convinced that Brooklyn's rising rents and property prices were showing no signs of abating. The couple had $100,000 in savings, which they intended to combine with mortgage financing to purchase a residential income-producing building. Nathalie focused her search on Brooklyn, narrowing it down to Williamsburg, where she thought there was better potential to make a good return on their investment. She had quit her full-time job and was planning on managing the building and the renovation – should it be needed – herself. Was she ready to take on this challenge or was she in over her head?

Keywords: real estate development; Property; Investment; Management; New York (city, NY); Brooklyn;

Citation:
Wu, Charles F., Jackie Bereiter, and Signe Conway. "Brooklyn Lodgers: 78 South Third St., Brooklyn, NY." Harvard Business School Case 219-022, August 2018. (Revised November 2018.) View Details

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Teaching Note | HBS Case Collection | October 2018

Kev McDonald Had Some Land...

Charles F. Wu and Arthur R. O. Sobral

Citation:
Wu, Charles F., and Arthur R. O. Sobral. "Kev McDonald Had Some Land..." Harvard Business School Teaching Note 219-054, October 2018. View Details

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Case | HBS Case Collection | August 2018 (Revised September 2018)

National Storage Affiliates: The REIT IPO Decision

Charles F. Wu, Max de la Bruyére and Gregory D. Himmel

In 2015, two years after founding National Storage Affiliates (NSA), Arlen Nordhagen and Tamara Fischer had an important decision to make. Should they proceed with NSA’s IPO? Although they had targeted to receive $15-17 a share, it was now apparent that the figure was unlikely to be more than $13. Applying a novel solution to bringing private operators together, NSA had so far acquired or contracted 246 properties across the USA. NSA would bring in private operators (PROs) by offering equity in the total company and allowing them to keep most operational control. To increase the pace of growth and be able to compete with the public self-storage companies, NSA needed to raise more capital, hence the IPO. However, potential investors saw some problems with the business model and were unwilling to pay the envisioned target price per share. They identified three options going forward: proceed with the IPO at $13, remain private, or unwind the companies, letting the PROs regain individual ownership of the properties. What should they do?

Keywords: real estate industry; Initial Public Offering; Problems and Challenges; Decision Making; Real Estate Industry;

Citation:
Wu, Charles F., Max de la Bruyére, and Gregory D. Himmel. "National Storage Affiliates: The REIT IPO Decision." Harvard Business School Case 219-026, August 2018. (Revised September 2018.) View Details

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Technical Note on Financial Leverage in Real Estate

Abstract

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