Case Detail

Case Summary

The Trouble with Lenders: Subtleties in the Debt Financing of Commercial Real Estate

Case Number: 5-315-507, Year Published: 2016

HBS Number: KEL987

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Authors: Craig Furfine

Key Concepts

Cash Flow Analysis, Financial Analysis, Financial Strategy, Private Equity, Real Estate, Strategic Planning


With interest rates near all-time lows in late 2015, Stanley Cirano knew it was an opportune time to consider the financing on his portfolio of commercial real estate. Cirano Properties was the general partner on three separate private equity investments of retail shopping centers in suburban Chicago. The first, Brookline Road Shopping Center, had been acquired in 2006 and had been managed through the financial crisis and real estate downturn. The property was performing well and Cirano wondered whether it made sense to refinance or sell. The second property, Columbus Festival Plaza, had been acquired in a 2010 bankruptcy auction. Although the property had needed a good amount of capital improvements, Cirano was proud of the growth in net operating income he had been able to generate. The final property, Deerwood Acres, had been developed by Cirano himself after acquiring the property in 2013 from the previous owner, who had been operating a go-cart track and drive-in theater on the land. Cirano expected great things from the property, though his lease-up had been slower than anticipated.

Although the three properties had different levels of performance and presented different management issues, they all shared the fact that they were all significantly financed, in part, with debt. As the properties were acquired at different times, Cirano had simply selected what seemed like reasonable financing at the time. With his concern that interest rates would soon be rising, Cirano thought it made sense to take a holistic view of his portfolio, consider what debt options were available to him, and make a sound strategic decision on the financing of all his assets at the same time.

Learning Objectives

After students have analyzed the case, they will be able to evaluate debt offerings from different lenders and understand their strengths and weaknesses; calculate the cost of refinancing and defeasance, and understand the strategies for using these tactics; and evaluate a lending opportunity from the lender's perspective, especially on a property with uncertain prospects.

Number of Pages: 14

Extended Case Information

Teaching Areas: Finance

Teaching Note Available: Yes

Geographic: Chicago, Illinois, United States

Industry: Commercial Real Estate, Retail

Organization Name: Fictional

Organization Size: Small

Decision Maker Position: General Partner

Decision Maker Gender: Male

Year of Case: 2015