The Millegan Creek Apartment Harvard Case Solution & Analysis

The Millegan Creek Apartment Case Solution

1.      Introduction

The Millegan Creek is located in Williamson County, in the city of Austin. The site where The Millegan Creek’s location was irregular and rectangle shaped. The surface caused many problems in the construction of this project.

Key players:

Fleet Bank:

 Fleet bank is one of the largest banks in England, with $45billion assets and 10% market share. The bank grew rapidly through acquisition of two large banks that are, Norstar Bank in 1987 and Bank of England in 1991.

In 1991, the bank had a real estate portfolio of about 75% of loan approximately $500,000, during this time small loans were very expensive to manage. For which, Fleet Bank made new strategies for their real estate department. The strategy was to work proactively with some of the top developers in country.

JPI Multifamily Inc.

JPI is a "merchant builder," they develop properties and sell them instead of maintain their ownership. JPI was formed in 1989, since then, they have developed approximately 2,800 apartment units and sold 1,640 apartments, holding periods of development for each project ranges from two to three years.

 JPI purchased their first site “trophy property” on hilltop in 1992. It took a lot of efforts to get a permit for this site and in 1993, they started construction on 210 units. Which are going very well ever since.

Fleet bank was interested in financing JPI’s first project by giving them a loan, their motivation was sourced by their manager’s visit to the construction site., JPI too wanted complete financing for this project.

JPI purchased their second site, which located in North Central area of Austin in 1993 after the completion of their first project.

It was JPI’s third apartment development in Austin. After investigating Austin’s market, they began considering constructing on the outskirts of Austin, north of Jollyville Road. At that time, investing in this project seemed like a great idea as Austin’s population was growing, which in turn also benefited the people there as more construction projects yielded in more jobs for the locals. JPI found three good sites for this project, but these sites were too expensive. JBI believed that this site would work well as this site was very close to Austin’s tech district..

Tom (Fleet Bank’s manager)  was immensely impressed by Austin’s market. He strongly felt that the time was right for fleet bank to invest in Texas’ apartments market.

2.      The Site Location, its price, and the product:

The Austin economy was very developed; there were several universities and colleges in the city, with a population of 100,000 students. The population of the workforce in Austin was at 100,000 workers. Austin was ranked at fifth in the top ten list of cities with most number of proficient workers. Major companies were attracted to Austin because the city promised better workers at less wages since unemployment was high.  Another important feature of Austin’s economy was its environment. This is why many developers held their projects in Austin. In October 1993, Austin was ranked at 6th as the most preffered location in America for manufacturing.

Over the last twelve years, Austin’s apartment market has seen fluctuation. Between 1986-1987, the market saw a decrease in occupancy and rentals but the market saw rapid improvements in 1989. In 1993 according to city’s figures, there were 2,064 apartments under construction, 1,037 units were approved for construction, and 5,643 units were in waiting. Tom estimated that over the next three years all of these units (8,744) would be fully constructed....................

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