Case Detail

Case Summary

Expect the Unexpected: Risk Measurement and Management in Commercial Real Estate

Case Number: 5-315-310, Year Published: 2017

HBS Number: KE1016

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Authors: Craig Furfine

Key Concepts

Cash flow analysis, Financial analysis, Financial management, Monte Carlo, Public policy, Real estate, Risk management, Risk measurement, Statistical methods


In early December 2013, Roxann Biller, Associate at the Chicago-based private equity firm Delta Quantitative Real Estate Capital, was asked to assess the risk associated with the firm's first potential overseas investment. Haifu Sentā Gendaino (HSG) was a large multi-tenant logistics property located in the Gaikando area of Tokyo. High-quality tenants currently occupied the property, so at first glance the risks of investing in the property seemed minimal. However, Biller knew that she had to consider the potential drawbacks. This would mean gaining a better understanding of each tenant, trying to forecast the future condition of the Tokyo logistics market, and considering what new risks her firm would face because the property's cash flows were in a foreign currency.

Learning Objectives

After reading and analyzing the case, students will be able to construct a probabilistic analysis of real estate returns by incorporating Monte Carlo simulation into a real estate pro forma; compare and contrast the relative strengths and weaknesses of probabilistic and deterministic analyses; and understand the effects of foreign currency transaction exposure on expected returns denominated in domestic currency and qualitatively discuss the merits of hedging foreign currency risk.

Number of Pages: 16

Extended Case Information

Teaching Areas: Finance

Teaching Note Available: Yes

Geographic: Tokyo, Japan

Industry: Commercial Real Estate

Organization Name: Fictional

Decision Maker Position: Associate

Decision Maker Gender: Female

Year of Case: 2013