How do forecasting and economic value analysis influence real estate investment decisions?
Now that you have acquainted yourself with the One Lincoln Street development in the casebook and panel discussion, discuss the following questions:
What was it that John Hynes saw in the space market, looking forward from 1999 through 2004, that made him excited about the One Lincoln Street project? What role do you think this played in his willingness to launch this project without preleasing?
If you were Frank Mattson at the pension fund (which, as you recall, is supposed to be conservative in its investment policies), how would you have reacted to John Hynes’s enthusiasm about the One Lincoln Street project? What questions would you have asked Hynes? What research would you have wanted to do yourself?
How “big” was the ex ante positive NPV in the project? What is the source of that large positive NPV? Is it big enough, and do you have enough confidence in it that you think the pension fund should have done what it did, which was to make an exception to its rule of not investing in development projects without preleasing?
Would your answer to the question above change if you knew that the building was sold in 2004 for more than $700 million?
Sample Solution
