The 10th Annual Booth-Kellogg Real Estate Challenge, hosted by the Kellogg School of Management Real Estate Program, took place on Friday, June 3rd at the University Club in Chicago. This was the first year that the competition was open to the public. Students from both Booth and Kellogg were given a mandate to invest between $500 million and $1 billion for the privatization of a public equity REIT. The team from Kellogg included part-time students Toby Veit and Todd Barthel, and full-time students Mike Fishbein, Matt Graham and Kaikai Xu.
|10th Annual Booth-Kellogg Real Estate Challenge|
The project gave students exposure to the public REIT industry, a space which many of the team members were previously unfamiliar. The project also provided students with access to dealmakers in some of the top companies in the REIT and private-equity world, including Boston Properties, Angelo Gordon, Whitestone REIT and UBS O’Connor, among many others. John Robertson, the CEO of Alternative Investments for RREEF, was a regular advisor to the team, attending most meetings and providing unparalleled industry expertise.
Kellogg and Booth teams submitted a 30-page investment memorandum, followed by a 35-minute presentation to the judges in an investment committee format, with a 25-minute Q&A session thereafter. The judges were Frank Cohen, Senior Managing Director, Blackstone; Brian Newman, Managing Principal, Ceres Real Estate Properties; Tom Nolan, former COO of GGP; Timothy Pire, Managing Director, Heitman; and Kim Redding, CEO, Brookfield Investment Management.
Kellogg presented their investment thesis first, the privatization of Washington REIT (WREIT), a diversified REIT with holdings concentrated in the greater Washington DC MSA. The proposal to privatize WREIT required the simultaneous marketing of a portion of the portfolio for sale (due to liquidity constraints). The team aimed to relieve the company of the burdens of being public and capitalize on the REIT’s mispricing in the public markets. With the strong Washington DC market fundaments and a pending recovery, the business plan aimed to grow NOI over the hold period of five years and sell the portfolio, returning a mid-teens IRR to the investor.
The Booth team then presented their proposal for the privatization of DuPont Fabros Technology Inc. (DFT), a data center REIT with holdings concentrated in the Northeast US. Similar to the Kellogg team, the Booth team outlined why they believed DFT was undervalued in the public market and provided a compelling privatization strategy with above market returns.
In the end, the Booth presentation was chosen as the winner by a vote of 3-2, but both students and professors agree that, due to the experiential learning that the team gained, there was no real loser in the competition. After both teams presented to the judges, they then presented another shorter presentation to the greater assembly (over 125 attendees) over lunch, again followed by a Q&A session.