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AUSTIN, TX-A team from the University of California at Berkeley’s Hass School of Business has won the 2nd annual Real Estate Finance Challenge put on by the University of Texas at Austin’s McComb’s School of Business. The event concluded Friday in Austin.

Touted as the largest graduate real estate finance challenge in the country, 12 of the top business schools in the country participated, including that of Stanford, Wharton, Kellogg, UCLA, Harvard and Columbia. The McComb’s School team came in second place and a team from Harvard took third place. A cash prize of $5000 went to Hass School of Business, while the teams from Harvard and the University of Texas each received $1000.

Goldman Sachs & Co. provided this year’s case, which cast each student team as a global real estate opportunity fund presented with a retail strip mall center suffering from multiple problems. The property was situated on contaminated soil, had a high vacancy rate, was difficult to subdivide and was surrounded by significant market competition.

In two days, teams had to decide whether to sell, reposition or redevelop the neglected property, develop an articulate and thorough argument, and defend their choice in a 20-minute, polished presentation to judges from financial institutions such as Bear Stearns, Goldman Sachs, Wells Fargo, and Banc of America Securities.

The teams had three possible solutions to choose from. They could sell the asset now, and take a $3 million loss on the deal. They could reposition the asset in the market or they could raze the entire site and redevelop the project, which could result in substantial environmental risk. The winning team from the Haas School chose to reposition the property. This option required a $20 million capital infusion to both overhaul the property and backfill vacant space before exiting the investment. Their strategy focused strongly on leasing the remaining space with attractive credit tenants and making the property a first class retail center.

The first option of an immediate sale, neglected the property’s strong retail target area and the opportunity to generate attractive returns to the fund. A third option, scraping the property and developing a Power Center with smaller retail strips on the site contained too much uncertainty. The inability to determine environmental remediation costs as well as local municipality support in the form of tax abatements and TIFs drove the winning team away from recommending a complete redevelopment of the property.

“The case that we gave the teams this year was much harder and more complicated than last year’s, and the judges had a harder time ranking our top teams this year,” says Todd Williams, managing director of Goldman Sachs in Dallas. “These students did in two days what professionals may have taken several months to do, and they definitely raised the bar significantly this year – the performances were exceptional. This is the best way for graduate students to experience what it’s like to be a real estate professional.”

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