Case Detail

Case Summary

Hotel Perennial

Case Number: 5-410-757, Year Published: 2011

HBS Number: KEL518

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Authors: William Bennett; Franco Famularo

Key Concepts

Real Estate, Hotel, Entrepreneur, Market Analysis

Abstract

The Hotel Perennial case puts students in the shoes of Dan Jameson, founder and CEO of a boutique real estate private equity firm called EL Investments (ELI), as he wrestles with the decision of whether or not to acquire the distressed Hotel Perennial, a 194-room hotel on the north side of Chicago, Illinois.
When making the investment decision, Jameson (and students) must consider various factors: What is ELI’s implicit investment strategy, and what are the firm’s core competencies? What are Jameson’s goals for growing ELI, and how might the acquisition of the Hotel Perennial fit with those goals? What opportunities and challenges might ELI face if it decides to acquire the hotel? How much would a buyer likely have to pay for the Hotel Perennial to achieve an attractive return?
In addition to containing a hotel valuation and modeling exercise, the Hotel Perennial case also exposes students to several real estate industry concepts and terminologies, including those regarding the hotel sector, equity sourcing, and distressed investing.
The case material assumes that students have taken an introductory real estate finance course or have relevant work experience.

Learning Objectives

The case has three primary teaching objectives:

  • Show students how an investment decision can go beyond simply “crunching numbers” and projecting an internal rate of return to include considering an individual’s or firm’s strategic objectives and core competencies. Students should think through how to prioritize the many factors that can go into evaluating an investment, and not just rely on any one factor alone to determine whether or not to pursue an investment.
  • Provide students with a general overview of the hotel sector and illustrate how to value a hotel and/or distressed property using different valuation techniques.
  • Teach students how to think about the hotel positioning decision and whether to flag (brand) a hotel.

Number of Pages: 19

Extended Case Information

Teaching Areas: Entrepreneurship, Finance, Marketing, Real Estate

Teaching Note Available: Yes

Geographic: Chicago, Illinois, United States

Industry: Real Estate Private Equity

Organization Name: AJ Capital Partners

Organization Size: Small

Decision Maker Position: Founder and CEO

Decision Maker Gender: Male

Year of Case: 2010