Emery Tech: Clif Jumping
2018 | Case No. RE141 | Length 17 pgs.
Melinda Ellis Evers, a Bay Area native and Stanford GSB alumna, founded Ellis Partners (Ellis), a commercial real estate investment and development firm in 1993 together with her father and brother. One of Ellis’ projects was the redevelopment of an obsolete manufacturing facility located in Emeryville, California into Class A office / R&D space – Emery Tech – in 1998. After a successful nine-year investment period, Evers spotted another development opportunity to convert the remaining unused space into new office space to further take advantage of the vibrant office leasing environment in the Bay Area. Together with its new equity partner CarVal, Ellis successfully closed a recapitalization deal and put in additional new equity to fund the construction. However, just as Emery Tech’s new space became ready for tenants in late 2007, the global financial markets collapsed and the demand for office space evaporated. To make things worse, one of Emery Tech’s key tenants, Washington Mutual Bank, had gone into receivership and notified Ellis in December 2008 that it was invoking an obscure provision of U.S. banking regulation to terminate its lease. Emery Tech was suddenly underwater. Evers was faced with the decision to walk away from the project and lose the original investment made only two years ago or put in additional capital to bring in a new tenant – Clif Bar – amid a rapidly deepening global financial crisis.
Learning ObjectiveThis case demonstrates the unpredictability of real estate cycles and the complexity of a commercial real estate restructuring process. In particular, it helps students better understand (i) the risk and reward of commercial real estate development and the importance of timing in the investment process, (ii) the arbitrary nature of regulatory events and the effects they have on real estate projects, (iii) the importance of balancing relationships with key stakeholders, and (iv) the value of creativity in negotiations and designing flexible restructuring solutions.
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