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Jun 13 2013


The 12th Annual Booth-Kellogg Real Estate Challenge, sponsored by the Zell Center for Risk Research at the Kellogg School of Management, occurred on Thursday, May 23rd at the Waldorf Astoria in downtown Chicago. Students from Booth and Kellogg were given a mandate to invest $250 million in real property in Brazil. This year’s challenge was both timely and relevant as it required the teams to grapple with the unique risks and problems that many investors are facing today as they search for yield in emerging markets. The team from Kellogg included Zara Berengut, Nicholas Bryer, Bo Cromelin, Ben Engleman, Erik Larson, and Dave Smith.

As practitioners know all too well, market transparency is often very lacking in emerging markets. For example, while an investor in the United States or Europe can easily find occupancy rates in even tertiary markets, this may not be the case in emerging markets. This presented a key challenge for both teams in identifying the key risks, trends, and opportunities in Brazil. With support from Professors Bill Bennett and Denise Akason, the team reached out to several practitioners both in the US and on the ground in Brazil. Through this research, the Kellogg team discovered a scarcity of debt capital in Brazil. The team proposed to fulfill this unmet demand with a preferred equity structure that would mitigate the downside price volatility associated with investing in Brazil while also giving the fund upside participation. The team went on to target compelling trends and attributes in the Retail, Hotel, and Office sector. The team also presented an example of a live office deal in Rio de Janeiro, where a local sponsor confirmed an appetite for their preferred structure.

Booth’s team took a different approach and targeted investments in four specific asset classes. First, they identified an opportunity to invest in Industrial development close to transportation and warehousing hubs near Sao Paulo. Second, given the significant shortage of affordable housing in Brazil, they recommended forming a JV with a distressed public homebuilder to construct low-income housing. Third, in the wake of a newly built cable connecting the U.S. and Brazil, they recommended a Data Center development strategy. Lastly, believing that the highly fragmented hotel market would move towards consolidation in the short-term, they recommended investing in a hotel company.

The judges of this year’s competition were Sam Zell, Chairman of Equity Group Investments; David Helfand, CEO of Helix Funds and co-President of Equity Group Investments; and John Schreiber, partner and co-founder of Blackstone Real Estate Advisors and President of Centaur Capital Partners. While the judges were highly impressed by both presentations, they ultimately chose the Booth presentation as the winner. The audience concluded that the Kellogg presentation was the winner.

The Challenge concluded with a Q&A session with Sam Zell moderated by Therese McGuire. When asked about his own experience investing in emerging markets, Zell reiterated the importance of teaming up with a trustworthy and competent local partner, a point both teams underscored in their presentations.

12th Annual Booth-Kellogg Real Estate Challenge
Kellogg instructors, Kellogg team, and the Challenge judges.
From left to right:
Denise Akason, Bill Bennett, Dave Smith, Nick Bryer, Ben Engleman,
Zara Berengut, Bo Cromelin, Erik Larson, Sam Zell, David Helfand
and John Schreiber.

About the Author

This article was written by Sean O’Grady '14.