Case Detail

Case Summary

Redeveloping Newcastle: Public Incentives to Spur Commercial Development

Case Number: 5-315-506, Year Published: 2016, Revision Date: July 11, 2017

HBS Number: KEL973

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Authors: Craig Furfine

Key Concepts

Cash Flow Analysis, Financial Analysis, Financial Planning, Organizational Design, Public Policy, Real Estate, Real Estate Development, Tax Increment Financing

Abstract

Louise Dejan was a successful real estate developer operating throughout northeast England. The city council of her hometown of Newcastle faced a problem common to many areas: how to encourage private investment into less attractive areas. In August 2012, Newcastle's East Pilgrim Street neighborhood remained an eyesore, despite its great location between the city's Central Station and city hall. It was a natural place for Dejan to build a typical urban office building over street-level retail building. On a particularly attractive site sat an asbestos-contaminated building, which was a former home to the Bank of England. The costs of remediation had kept developers like Dejan away for many years. To encourage redevelopment, the Newcastle City Council had recently designated the East Pilgrim Street neighborhood an Accelerated Development Zone (ADZ). This gave Dejan access to Tax Increment Financing (TIF), a method by which public funds could be spent to encourage private sector redevelopment of designated parcels of land. After studying the details of TIF and the financial projections of a potential new development, Dejan had to decide whether she should be the first to redevelop property in this well-located but seemingly forgotten neighborhood.

Learning Objectives

After students have analyzed the case they will be able to: develop and analyze the mechanics of a pro forma that incorporates public finance incentives; understand why and how TIF is used in commercial real estate financing decisions; and evaluate how both the public and private sectors can attempt to de-risk investments that involve TIF.

Number of Pages: 14

Extended Case Information

Teaching Areas: Finance

Teaching Note Available: Yes

Geographic: Newcastle, England, United Kingdom

Industry: Real estate

Decision Maker Position: Real estate developer

Decision Maker Gender: Female

Year of Case: 2012