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• Teaching Note | HBS Case Collection | November 2018

  The Tax Man: Taxes in Private Equity Real Estate

  Nori Gerardo Lietz, Sayiddah Fatima McCree, Nori Gerardo Lietz and Sayiddah Fatima McCree

  Teaching Note for HBS No. 218-077. The case discusses the acquisition of a commercial building in San Francisco by a real estate private equity fund KSW Partners LLC (“KSW”), whose limited partners were US institutional investors (Pension Funds (“PFs”)), US high net worth individuals (“HNW”), and a foreign Sovereign Wealth Fund (“SWF”) as a co-investor. The protagonist is a new associate Caelan Langan who has to make a recommendation to his new boss as to what structure(s) to use. All parties involved in the transaction, including the fund’s general partner, are subject to unique tax treatments and exemptions, both on income and capital gains distributions. The general partner faces the challenge of analyzing the economic attractiveness of the opportunity for each party as well as for itself, considering all constraints, tax implications, and risks involved, and deciding on a course of action that reconciles often competing interests. It should become readily apparent there is no optimal solution that maximizes the return for each category of investor on an after-tax basis. It should also become evident that the General Partner faces a series of conflicts between its after-tax interests and those of its investors, as well as potential conflicts among the investors.
  The case incorporates the effects of the Tax Cuts and Jobs Act (“TCJA”) signed into law on December 22, 2017. There are references to many different sections of the Internal Revenue Code, some of which were modified by the TCJA, such as the rates on personal and corporate tax rates, and others, such as those on Unrelated Business Taxable Income (“UBTI”).
  The case facts have been greatly simplified to allow for a focus on the teaching objectives referenced below. Any potential transaction can be exceedingly complicated from a tax perspective with multiple investor categories. Typical investment structures involve multiple vehicles both on-shore and off-shore. To the extent possible, it would be advisable to have a tax expert as a guest for the case.

  Keywords: real estate; Taxation; Private Equity; Property; Acquisition; Conflict of Interests; Governing Rules, Regulations, and Reforms;

  Citation:

  Lietz, Nori Gerardo, and Sayiddah Fatima McCree. "The Tax Man: Taxes in Private Equity Real Estate." Harvard Business School Teaching Note 219-017, November 2018.  View Details

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• Teaching Note | HBS Case Collection | November 2018

  The Tax Man: Taxes in Private Equity Real Estate

  Nori Gerardo Lietz, Sayiddah Fatima McCree, Nori Gerardo Lietz and Sayiddah Fatima McCree

  Teaching Note for HBS No. 218-077. The case discusses the acquisition of a commercial building in San Francisco by a real estate private equity fund KSW Partners LLC (“KSW”), whose limited partners were US institutional investors (Pension Funds (“PFs”)), US high net worth individuals (“HNW”), and a foreign Sovereign Wealth Fund (“SWF”) as a co-investor. The protagonist is a new associate Caelan Langan who has to make a recommendation to his new boss as to what structure(s) to use. All parties involved in the transaction, including the fund’s general partner, are subject to unique tax treatments and exemptions, both on income and capital gains distributions. The general partner faces the challenge of analyzing the economic attractiveness of the opportunity for each party as well as for itself, considering all constraints, tax implications, and risks involved, and deciding on a course of action that reconciles often competing interests. It should become readily apparent there is no optimal solution that maximizes the return for each category of investor on an after-tax basis. It should also become evident that the General Partner faces a series of conflicts between its after-tax interests and those of its investors, as well as potential conflicts among the investors.
  The case incorporates the effects of the Tax Cuts and Jobs Act (“TCJA”) signed into law on December 22, 2017. There are references to many different sections of the Internal Revenue Code, some of which were modified by the TCJA, such as the rates on personal and corporate tax rates, and others, such as those on Unrelated Business Taxable Income (“UBTI”).
  The case facts have been greatly simplified to allow for a focus on the teaching objectives referenced below. Any potential transaction can be exceedingly complicated from a tax perspective with multiple investor categories. Typical investment structures involve multiple vehicles both on-shore and off-shore. To the extent possible, it would be advisable to have a tax expert as a guest for the case.

  Keywords: real estate; Taxation; Private Equity; Property; Acquisition; Conflict of Interests; Governing Rules, Regulations, and Reforms;

  Citation:

  Lietz, Nori Gerardo, and Sayiddah Fatima McCree. "The Tax Man: Taxes in Private Equity Real Estate." Harvard Business School Teaching Note 219-017, November 2018.  View Details

  CiteView DetailsPurchase

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• Case | HBS Case Collection | May 2018 (Revised October 2018)

  Argentina Power—Don't Cry for Me Argentina

  Nori Gerardo Lietz, Sayiddah Fatima McCree, Nori Gerardo Lietz and Sayiddah Fatima McCree

  In 2016, Bruce Wayne, Managing Director of Energy Finance Corporation (“EFC”), was refining the Investment/Credit Committee materials for the development of up to 10 power generating plants in Argentina. As a subsidiary of the much larger International Conglomerate Corporation (“ICC”), EFC had to convince ICC’s Investment/Credit Committee to provide capital despite the many risks associated with investing in Argentina.
  Due to Argentina’s vast energy resources, its modern political history has been deeply intertwined with its “energy” history. In its many military coups and political uprisings, typically each government used artificially low energy prices to keep the population subdued and the revenues from YPF to finance these subsidies or worse to line their pockets. Many of the interventionist measures that Argentina's governments imposed on the energy sector, such as price controls and at the most extreme nationalization, made it nearly impossible for private sector energy players to succeed or for the public sector to invest in its development.
  After severe blackouts in the summer of 2014, many Argentines in the country's most populous cities were outraged and went to the streets in protest. These blackouts were specifically due to the increased power usage for air conditioning in the summer months but were more generally caused by the removal of subsidies for power companies and a dearth of public and private infrastructure investment. Into this environment, President Macri was elected and he made energy reform one of the key pillars of his administration. Furthermore, he invited the private sector back into Argentina to immediately alleviate its power generation deficiencies.
  In this case, the students will examine the ways in which Bruce Wayne and his team may structure and diligence this electric power infrastructure deal. Particularly, the students should come to understand how the deal structure could allow EFC to both gain the most benefit but also shift the risks away from their company. Key questions that will be explored include: What makes investing in infrastructure particularly risky? Can private investment close the world’s infrastructure gap? Can political risk be mitigated?

  Keywords: cross border; energy markets; Infrastructure finance; Infrastructure development; Business Subsidiaries; Business Cycles; Macroeconomics; Energy Generation; International Finance; Project Finance; Government and Politics; Demand and Consumers; Infrastructure; Utilities Industry; Energy Industry; Financial Services Industry; Argentina; Latin America;

  Citation:

  Lietz, Nori Gerardo, and Sayiddah Fatima McCree. "Argentina Power—Don't Cry for Me Argentina." Harvard Business School Case 218-041, May 2018. (Revised October 2018.)  View Details

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