Angus Catwright Project. The instruction are below.
Case Assignment: Angus Cartwright IV Part I Real Estate Finance Your boss, Angus Cartwright, has just returned from a meeting with John and Judy DeRight. The DeRights have asked him to identify and recommend investment opportunities in the greater Washington D.C. area. Angus has presented them with the facts in the case and, based on a few back of the envelope calculations, the DeRights have decided that they are interested in investing in one of the two apartment buildings under consideration, either Alison Green in Montgomery County, Maryland or Ivy Terrace in Arlington, Virginia. Angus is about to leave for his annual visit to the homeland and asks you to generate the standard exhibits and cash ow projections for the two buildings. Angus will be back in the o¢ ce on Tuesday, November 24th, and you re scheduled to meet with him to present him with the cash ow projections before he talks again with the DeRights. Instructions: This is the rst part of a two-part case assignment. In this part, you will reproduce exhibits 1, 2, 3, 4 & 5 for each of the two properties assuming that mortgage payments are made on an annual basis. The structure of exhibits can be found within the Angus Cartwright IV HBS case. Alison Green, provides both a template for your analysis and a way to check that you spreadsheet is set up correctly. The after-tax IRR for Alison Green, assuming annual payments, is 13.85%. The after-tax IRR for Ivy Terrace is 13.52%. Your objective is to match these returns based on the information and modeling performed in Excel. You can work either individually or in pairs. You and your partner should work as an independent unit. Do not copy your spreadsheets from other sources or from students outside of your team. Your team will receive a zero on this assignment if it is determined that your spreadsheets were copied from another source. If you or your group need clari cation about something from the case or are having trouble, please feel free to contact me. Send a copy of your spreadsheets containing the exhibits no later than 5:00 pm on Tuesday, November 24th. Notes: The spreadsheets are to be constructed in Excel. Please format your spreadsheets so that the information is presented in a readable and e¢ cient manner. Read the entire Properties section. Information relating to location, taxes, etc., contained in the descriptions of the residential properties is needed in the analysis of the o¢ ce properties. What is referred to as NOI or Cash Flow from Operations (CFO) in the case is what we refer to in class as cash ow net of reserves. Follow the same treatment of the cash ows as in the case. There is a land lease associated with Ivy Terrace. The lease is treated as anancial claim and the annual payments are accounted for in the same manner as mortgage payments. The terminal cap rate is applied to NOI in year 10, not year 11. 1 Case Assignment: Angus Cartwright IV Part 2 Real Estate Finance Your boss, Angus Cartwright, has just returned from a meeting with John and Judy DeRight. The DeRights have asked him to identify and recommend investment opportunities in the greater Washington D.C. area. Angus has presented them with the facts in the case and, based on a few back of the envelope calculations, the DeRights have decided that they are interested in investing in one of the two apartment buildings under consideration, either Alison Green in Montgomery County, Maryland or Ivy Terrace in Arlington, Virginia. Angus is back in the o¢ ce after his annual visit to the homeland and is so pleased with your work on the nancials that he asks that you continue on to complete the analysis and make a recommendation to John and Judy; informing them of the risks and returns associated with each property and as to which property is the best investment for them based on your analysis and insight. You re scheduled to meet with the DeRight s at 2:30 pm on Tuesday, December 8th. Instructions: This is the second part of a two-part case assignment. In this part, you will reproduce exhibits 6, 8, & 9 (or calculate the partitioned IRRs directly as performed in class rather than reproducing Exhibit 8) for both Alison Green and Ivy Terrace. The structure of exhibits can be found within the Angus Cartwright IV HBS case and Exhibits 1 through 5 for each property are provided and will serve as the starting point. If you wish to use the exhibits that you completed for the rst part of the case do two things: 1) check that the IRR for each property equals the target IRR provided in the rst part of the case assignment, and 2) if you change the growth rate for the cash ows from operations from 3% to 2% for each property, the IRR for Alison Green changes to 13.39%, the IRR for Ivy Terrace, 13.08%. This check ensures that you ll be working with the same set of projections. Your analysis is limited to the two residential properties and you are to choose one, and only one, as your recommendation to the DeRights. Furthermore, do not take the price differences between the two properties into consideration, assume that they are focused on adding real estate to their portfolio and the size of the investment is immaterial at this point. You can work either individually or in pairs. You and your partner should work as an independent unit. If you or your group needs clari cation about something from the case or are having trouble, please feel free to contact me. Please format your work so that it can be uploaded on Canvas in one single document. Your analysis and spreadsheets are due by class time on Tuesday, December 8th. The standard investment recommendation contains the following elements: A one paragraph executive summary providing a general overview of the analysis, including the recommendation and essential characteristics of the preferred investment that make it attractive relative to the alternative. This should be the rst page of your document and concisely summarize the analysis of the properties. 1 A detailed analysis of the information presented in the cash ow statements based on the scenario provided in the case. This section should be no more than three pages and include the bene ts and costs associated with each property as they relate to nancial performance and the perceived risks. It is important that this section of the document be comprehensive in it s assessment of risk and return, but also well structured and to the point. The DeRights are well aware of the information presented in the case, so there is no need to rehash known facts except as they relate to particular issues. Pro forma cash ow statements and supporting information for the two properties. This involves reproducing exhibits 1, 2, 3, 4, 5, 6, 8 (optional) and 9 in the case for each of the two properties. In addition to the exhibits, provide graphs illustrating the sensitivities of after-tax returns to assumptions about the growth rate of cash ows from operations. Analysis: Executive summary Which property do you recommend? Does it meet the DeRight s investment objectives? John and Judy do have slightly di⁄erent goals; John prefers income, Judy, appreciation. Despite this, assume they both prefer the property o⁄ering the best risk/return pro le. They can, after all, restructure the cash ows from there investment so that John receives more of a share from income and Judy more of a share from appreciation once they have purchased the property. Why is the property preferred? Detailed analysis Identify your recommendation. Explain your choice in terms of risk, return and how the property meets the investment objectives of the DeRights. Detailed discussion of the di⁄erences between the two properties regarding risk and return. Discuss the risks and unknowns associated with each property and compare the two properties in these terms. Are there other factors that come into play? Help and hints: Read the entire Properties section. Some of qualititative information about risk and future supply is contained in the descriptions of the residential properties but applies to the o¢ ce properties as well. All of the investment ratios and risk measures that you calculate as part of constructing the exhibits are relevant to your analysis and should be included in your discussion of the risk and return of investment. If there are other measures we have discussed in class that are not presented in the case, you should feel free to incorporate them into your analysis. Assume that the di⁄erence in prices of the properties do not play a role in the DeRights decision. 2 Angus Cartwright IV 9-813-185 R E V : J U L Y 3 1 , 2 0 1 7 ________________________________________________________________________________________________________________ Professors Kenneth J. Hatten, William J. Poorvu, and Howard H. Stevenson prepared the original version of this case, “Angus Cartwright III,” HBS No. 375-376. This version was prepared by Professor Arthur I. Segel and Professor John H. Vogel, Jr. of Tuck School of Business at Dartmouth. This case is not based on a single individual or company but is a composite based on the authors’ general knowledge and experience. Funding for the development of this case was provided by Harvard Business School. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2013, 2017 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545- 7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. K E N N E T H J . H A T T E N W I L L I A M J . P O O R V U H O W A R D H . S T E V E N S O N A R T H U R I . S E G E L J O H N H . V O G E L , J R . Angus Cartwright IV People Angus Cartwright IV was an investment advisor based in Arlington, Virginia, the home of many members of the DeRight family. In September 2013 his attention focused on the needs of two cousins at different stages of their lives. John DeRight had recently sold his