The Waldorf Property
10 Pages Posted: 5 Apr 2010
The Waldorf property is a tract of land whose development value is uncertain. One acre must be preserved as wetlands: The seller claims that it is too small an amount, and the Corps of Engineers indicates that it could be large enough. The case offers students the opportunity to apply the tools of pro forma cash-flow forecasting, electronic-spreadsheet modeling, decision analysis, and discounted cash flow and to wrestle with risk aversion and develop creative alternatives for reducing the uncertainty.
THE WALDORF PROPERTY
As Steve Miller, vice president of Land Development for Pflug Enterprises, turned his monthly desk calendar, he noted that only two weeks remained in the feasibility period of the Waldorf contract. Failure to terminate the agreement with the Acton Land Development Partnership by February 16, 1989, would, in effect, convert Pflug's refundable deposit of $ 150,000 into an irrevocable down payment of $ 150,000. While the Waldorf property was a desirable tract of undeveloped land in a particularly attractive area on the outskirts of suburban Washington, D.C., it did appear to be overpriced in light of potential limitations to the amount of usable acreage. Within the next several days, Miller would have to make a recommendation to Pflug's Management Committee as to the continuation, cancellation, or renegotiation of the contract.
The origins of Pflug Enterprises could be traced to 1964 and the founding of a general contracting company in northern Virginia which undertook a wide variety of projects from high-rise office buildings to warehouse/industrial facilities. With the launching of the BuildAmerica Condominium concept in 1974, Pflug diversified into real estate development. In subsequent years, Pflug added Skyjet, a helicopter charter service, split the BuildAmerica activity into a development component and a property-management component, and engaged in a number of development partnerships.
BuildAmerica Condominiums addressed the largely neglected needs of the group of small-business owners who required industrial space of a size inefficient for a stand-alone structure. An industrial condominium was an ideal solution for such small to medium-size businesses. Since 1974, BuildAmerica had developed 900,000 square feet of condominium space with a total gross sale value of more than $ 50 million. Exhibit 1 details these projects.
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Keywords: decision analysis, cash flow, forecasting
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The Waldorf Property
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