Re 3000 North Broad

Real Estate Financing

3000 North Broad Case Write-up

Nov, 6th, 2013

What are some things that Lance Johnstone did well and what should he have done better in planning this project.

Things Johnstone did well:

The original plan of the business case developed by Johnstone is solid: Johnstone and his partner has done the study on zoning and regulatory research. The development plan has been approved by the city, the general contractor responsible for the construction plan has been hired. The bank loan required for the development has also been approved as well.

The location, Philadelphia is where Lance Johnstone was born. He has done due diligence around the area by visiting the place, looking up owners and talking to people at Temple about their plans. Johnstone knows the area well and has seen the up and down of the city, which can provide different perspectives beyond the market research data.

The site of the project is well selected: 3000 North Broad is just few blocks between the two campuses of Temple University, a 34,000 students university which has significant shortage on housing provided to graduate and professional students.

Johnstone understood his shortfall on the field of real estate development and finance and decided to parter up with people who has expertise: Although Galloway is not an expert in real estate, he had done many good things along with the project. For examples, he quickly negotiated with another bank when the original bank pulled back the loan. Also, he convinced the city to approve the project by meeting and explaining that most o the labor work will be done with the union labor in the city.

Things Johnstone can do better

Over optimistic about potential rent: Johnstone decided to charge the rent way above average rent around the area. He believe there are demand for “luxury townhome rental”, however, the area was still surrounding with vacant lots and crumbling buildings.

Put too much faith on General...