Project Deutschland: Unpeeling the Onion of a Distressed Real Estate Portfolio Harvard Case Solution & Analysis

Project Deutschland: Unpeeling the Onion of a Distressed Real Estate Portfolio Case Study Solution

Strategy:

While making due diligence report and financial plans VERITAS’ team should select 5 step portfolio planning strategy in order to address the several issues that have been determined while making an investment plan. Five step portfolio management planning strategy should consist of the assessment of current financial situations and goals, establishment of investment objectives, determination of asset allocation, decision to invest or reject, and the monitoring, measurement and rebalancing of the investment.

In first step, VERITAS’ team needs to understand and analyze its current situation; either they have enough money, resources and abilities to invest and run in an investment fund called Garrison or not. This assessments requires the detailed analysis of VERITAS’ current assets, current liabilities and cash flows in the light of the company’s goals and objectives, in order to ensure that a potential investment will help to meet the company’s ultimate goals and objectives.

Establishment of an investment goal and objectives need to be clearly defined in order to find any existing gap between the investment planning and goals and objectives. Investment objectives are used to identify the willingness of VERITAS that how much risk it can bear from an investment in Garrison. In order to avoid the solvency problems in future, VERITAS should develop a benchmark risk and return rate after making sensitivity analysis on net return on investment and assets.

The investment strategy should involve the planning of asset allocation. Accurate planning of the company’s assets helps to target the expected return, which will be achieved from the investment. By using risk and return analysis, VERITAS can develop asset allocation strategy by selecting the appropriate debt to equity portion for an investment in Garrison Investment Fund. In allocation system, issue can  raise related to the difference in expected returns demanded by the different classes of investors, such as bond holders, stock holders and secured debt holders. In order to address this issue, an average return should be selected as VERITAS’ required return from investment in Garrison.

While making the decision to either invest in or reject an investment proposal, VERITAS’ team should focus on the accomplishment of itsultimate goals and objectives. If the investment proposal is not meeting the VERITAS’ goals and objectives criteria then it should be rejected, otherwise it should get accepted.

If an investment is made, there’d be a requirement to monitor and measure it on timely basis. This measurement is called the management process, in which a team will measure the investment’s performance after a duration; such as quarterly basis reporting. This measurement helps to avoid and overcome any negative consequences faced by an investment before the consequence turns into a dangerous situation and become a cause of hurdle.

Reinstate Tiberius or not:

Considering the past performance of Tiberius as an asset manager, it would not be in the best interest for Tallest to assign Tiberius as the portfolio manager, and should offer annual consulting for assisting Tallest in managing the portfolio. But it would also be difficult to engage Tiberius for receiving annual consultation fee as Tiberius won’t settle for this, therefore it would be best that VERITAS and Tiberius should work together as asset managers and share asset management fee, which will align the interest of both the parties in the same direction. Engaging Tiberius for handling the asset management function would mean losing 0.75% asset management fee, but since VERITAS will be capitalizing on the information provided by Tiberius; therefore, they will have to consider their concerns therefore both the parties start working together as asset managers in order to align their interests and address their concerns.

Conclusion

After considering all the probable outcomes VERITAS should acquire the Portfolio. It is expected the VERITAS will be earning a gross profit of 22.24% from this investment. According to the economic conditions of Germany, the investment horizon will improve over the next few years, and GDP growth is also estimated to increase, which in turn will decrease the inflation in the country. Considering the favorable economic outlook; it is beneficial for VERITAS to acquire the portfolio..............

 

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