White Square: A Perfect Storm in Moscow

White Square: A Perfect Storm in Moscow

By
Chris Mahowald, Cody Evans, Brian Patterson
2018|Case No.RE140| Length 21 pgs.

Brian Patterson was the lead developer of a large office project in Moscow when the global financial crisis hit. His project, which had looked like it would be jaw-droppingly profitable just months before, was suddenly thrown into turmoil, and he faced trouble on all fronts. His local development partner wanted to sell in order to shore up its failing balance sheet, his world-class anchor tenant suddenly reneged on its pre-lease agreement, the contractor was running months behind schedule, and the project’s bank was looking for any excuse to pull the construction loan.

Just months earlier, the project pro forma had projected hundreds of millions of dollars in profit. Suddenly there were serious questions around whether the project could even be completed. And if it could, what rent and cap rate values could be assumed to determine if it made sense to continue development? Patterson needed to make some assumptions to determine whether or not to accept a sale offer that had been drudged up by his local partner. And if he decided to turn down the sale offer, he needed to find a way forward through a maze of (i) diverging interests amongst his partners and (ii) project development problems.

As the economic and financial system faced global turmoil and threatened collapse, Patterson had to decide whether to keep developing the project – at significant risk to both the project and his personal career – or to sell for a modest profit and live to fight another day.

Learning Objective

This case puts the student in the vantage point of the developer of a large real estate project to highlight the complexities of real estate development, particularly in an emerging economy. Students will learn the myriad skills required of a developer, the valuation framework for a development project (including the economics for the developer), the effect of macroeconomics on the development process, and the governance issues associated with development partnerships.

This material is available for download by current Stanford GSB students, faculty, and staff only. For inquiries, contact the Case Writing Office.

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