LANCE JOHNSTONE: DEVELOPING 3000 NORTH BROAD Harvard Case Solution & Analysis


Problem Diagnosis

            Lance Johnstone is a former NFL player who had become interested to invest in the real estate development career and now he is performing the analysis of a 10-unit rental apartment in his hometown area of Philadelphia. The real estate area is quite depressed and there have been no similar real estate developments in the last 12 years. This case shows how Johnstone and his HBS partner, Galloway are reviewing, planning and performing the financial analysis of the subject property. They have purchased the land, developed the construction budget and a financing plan under the revised terms of the project.

In this case analysis, we have to perform a review of the financial analysis, projections and the valuation of this 10-unit apartment based on the changes in the fundamental assumptions in which the original bank has withdrawn the 1.9 million loan and a new bank will provide a lower amount loan of $ 1.7 million. Moreover, under the revised assumptions, the project cost has also increased. Now the new plan and the prospective returns of the budget need to be evaluated in the light of the new assumptions and a conclusion needs to be made.

Case Analysis

Analysis of Real Estate Project

The analysis of the case begins with the analysis of the real estate project regarding the planning of the real estate development by Lance Johnstone and his partner. First, we begin with the things, which have been done better by Lance Johnstone and his partner, and then we discuss those thing, which could have been done better by both the partners.

Things done better in planning the project

            The original plan, which has been developed by Lance Johnstone, seems to be solid for this property. Both the partners on regulatory and zoning have conducted a detailed research. They have also hired the general contractor who would be responsible for the construction plan of the project. Moreover, the development plan for the proposed property has also been approved by the city. The bank loan has also been approved although the previous bank had withdrawn their loan but a new bank, Clarion National Bank, has decided to pay a loan of $ 1.7 million for the development of the property.

The property is located in the hometown of Lance Johnstone which is his hometown and he has conducted a detailed due diligence for the property. He had visited the whole place, visited each of the owner, and also talked to the people at the Temple about their future plans. He knows the area well and thus he can form different perspectives for the proposed property beyond the market research conducted by them. The site of the proposed property is also good as the property is situated at 3000 North Broad and it just a few blocks between the two different campuses of the Temple University. This university has around 34000 students, which have housing shortage for these professional and graduate students.

Johnstone well understood where he lacked in the field of real estate development and in order to make a strong property development plan, he had joined hands with another partner, Galloway. Although he is not an expert in the field of real estate but he has supported the plan quite well and the best contribution by him was when the negotiated the $ 1.7 million loan with the Clarion National Bank when the Franklin Federal Bank had withdrawn the facility. He also played an important role in convincing the city for this development by explaining them that most of the labor work in the city would be completed with the help of the union labor present in the city....................

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