ESCP-24-25 RE Consulting Case Study: Tokyo vs. Hong Kong Investment PDF

RE Consulting. Session 3. ESCP-24-25_RE-Consulting-Alfonso Valero Session 3-Case-1_Tokyo_HongKong_Office vs. I&L Professor: Alfonso Valero Ph.D. Case 1. CEO Renuka Ramnath; Flex-space vs. E-commerce in Asia Renuka Ramnath, CEO of PIA (Prime-Investments-Asia Co.), was returning from her spring va...

RE Consulting. Session 3. ESCP-24-25_RE-Consulting-Alfonso Valero Session 3-Case-1_Tokyo_HongKong_Office vs. I&L Professor: Alfonso Valero Ph.D. Case 1. CEO Renuka Ramnath; Flex-space vs. E-commerce in Asia Renuka Ramnath, CEO of PIA (Prime-Investments-Asia Co.), was returning from her spring vacation in India, where she had been with her family on a 6-hour flight to Singapore, their family residence (husband and 3 kids) for the past three years. During a layover in Kuala Lumpur, she reviewed the operations of her local team, and after a two-hour delay in Malaysia, she re-read the details of the reports that her executive team in Asia had prepared while in flight. Renuka, who had been named one of the "Top 25 Most Powerful APAC Women in Business" by several prestigious publications (Business Today, Economic Times, Forbes, etc.), had to decide on a USD 30 million investment in a mixed- use development on the outskirts of Tokyo near the international airport or, alternatively, in a tech-oriented building in Hong Kong. Within three weeks, an offer for investment in the Japan project needed to be closed, or the funds would be allocated to another similar investment project in Hong Kong. If returns were not satisfactory, PIA might decide to transfer that CAPEX to other global regions.. The company's executive committee, composed of ten different nationalities, had prepared business, commercial, marketing, technical, legal, and financial reports for both locations in Hong Kong and Tokyo. The valuation done by JLLvalue.com showed similar returns in both cities, in terms of ROI and the key metrics required by PIA's business strategy. However, the asset classes were different; in Tokyo, logistics and industrial use predominated (about 70%), while in Hong Kong, it was mainly flex-office and co-working spaces (about 70%). The company had equity received from the Australian fund MJHv Group (25%) and Samurai Capital (25%), and decisions needed to be approved by both boards, so Renuka could not delay her recommendation for long. The goal of the groups is to evaluate both options and advocate for either the Tokyo or Hong Kong investments or a creative hybrid formula. Project in Tokyo: A few kilometers south of Narita International Airport, the "Airport South Industrial Park" had been developed; companies like Prologis were already established, and other Japanese companies were seeking international partners for the next phases. The parcel that PIA was considering was close to Prologis's site. Most airport developments came with climate-controlled assets, fully entitled land, and all municipal access and permits delivered. Tokyo had recently received significant interest from other international funds, making it a very attractive investment option. CBRE IM was also operating in Names and references cited in the case are invented. The Case is owned by Professor Alfonso Valero ESCP-24-25_RE-Consulting-Alfonso Valero Session 3-Case-1_Tokyo_HongKong_Office vs I&L the region, making the Tokyo option seem very interesting. Additionally, the Bank of Japan had just announced the end of negative interest rates, so the financial team should carefully consider the details of the investment and the cost of financing in local currency. The plot under consideration was ready to start the construction, and the technical team expected a 2-year build-out using a local construction firm that possibly will be a partner for this project. PIA planned to develop the logistics platform and remain as asset manager for 5 years, then dispose of the asset. Project in Hong Kong: A public-private initiative to promote Hong Kong as a tech hub was behind the project called Hong Kong's Science Park. However, recent news about the project's viability was splashed across all media. Initial rents were far from attracting tenants due to Hong Kong being the world's most expensive city for office rentals. Nonetheless, investments like those from Henderson promised an imminent resurgence of the city as a strategic hub in southern China. On the other hand, contradictory news about the coworking sector (WeWork, IWG...) provided no clear recovery plans or breathing space for the flex sector (post-COVID), especially after WeWork's failed IPO. Furthermore, the volatility in the stock prices of Chinese companies like Evergrande and the geopolitical tensions with Taiwan continued to add uncertainty to the Chinese real estate sector. An option that could attract investors was the Asian operator and WeWork's competitor JustCo, which had shown interest in several projects, according to comments from its founder, Wan Sing Kong. Alternatively, ShiMao Group could potentially invest and provide funds to participate in the project. Koramco Real Estate Fund was also interested in the project. It was clear that major funds were keen on investing in projects in Hong Kong and Mainland China, as the region continued to be extraordinarily attractive to large investors. Among them, the giant Wharf had begun conversations with the Hong Kong government to invest in the city. Group Work Methodology and Development: The case will be developed in groups, where each student must present a specific aspect of each investment: real estate strategy, financial, relevant technical aspects, regulatory-urban, legal, sustainable, social, and cultural impact, strategic for the region, company HR, marketing campaign, commercial, sales, risks, etc. Different departments of RE Consulting can participate in the client advisory strategy. The group's mission is to highlight the collaboration of various departments to offer an integrated solution to the developer/investor. The data in the case are fictional but could resemble similar projects developed in each city. Names and references cited in the case are invented. The Case is owned by Professor Alfonso Valero ESCP-24-25_RE-Consulting-Alfonso Valero Session 3-Case-1_Tokyo_HongKong_Office vs I&L Sustainability metrics and ESG certifications are crucial for investors and corporations, offering risk mitigation, compliance assurance, cost reduction, capital attraction, and reputational benefits. Different groups should consider how these factors can influence asset valuation through increased demand, improved income, lower risk premiums, and enhanced long-term resilience, potentially resulting in higher property values and improved financial outcomes. The choice between Tokyo or Hong Kong will involve developing and explaining the feasibility of the chosen project. Resources and information used in other master's courses, as well as the program bibliography, can be utilized. For office cost studies, the JLL report (APAC Fit-Out Cost Guide 2023-24) as well as CBRE's APAC reports, Hong Kong Property Market reports, and JLL APAC Research are recommended. Also any of the global Dynamics Office Dashboards within the top consultancy firms. For rent calculations, references can be taken from sector news transactions, e.g., Mingtiandi, or global reports like BCG’s. CIA factbooks are always good resources to review. During the class presentation, any course student can question the group responsible for the proposal. The evaluation criteria for the work and defense of the investment in one city or another are: Participation and collaboration of all students in each group in a coherent solution. Involvement and defense of the case to any question from another student. Consistency and feasibility of the proposed solution. Creative "Out-of-the-Box" alternatives; innovative ideas that help improve the project's profitability in usage, financing, and technical solutions can be proposed but must be based on the plots/locations in the Case. Particularly valued will be the participation of other students who are not part of the group defending the project. Names and references cited in the case are invented. The Case is owned by Professor Alfonso Valero ESCP-24-25_RE-Consulting-Alfonso Valero Session 3-Case-1_Tokyo_HongKong_Office vs I&L ESCP-24-25_RE-Consulting-Alfonso Valero Session 3-Case-1_Tokyo_HongKong_Office vs I&L-value RE Consulting Prof. Alfonso Valero Construction Costs USD/sqm Low cost Medium High cost Common areas 1,000 1,100 1,210 Retail Small