Cjuf

HBS Case Study – Canyon Johnson Urban Fund

Introduction

This HBS case study describes the Canyon Johnson Urban Fund formed by K. Robert Turner and former NBA all-star, Earvin “Magic” Johnson, who have raised $271.7 million to invest in urban areas. The fund focuses specifically on urban retail projects with national retail partners in minority areas with a anticipated return of 30%. The article discusses two proposed projects in Hollywood, California in which the fund may invest: the Hollywood and Highland project or the Sunset and Vine project. The Hollywood and Highland project sought to restore the area to its “former glory” by developing a 640,000 square-foot retail complex and hotel. The Sunset and Vine project was located a few blocks south-east of Hollywood and Highland and was proposing a 623,000 square-foot mixed-use residential and retail development. The case and my analysis go on to take a deeper look at the two proposed development options.

Structure

The Canyon Johnson Urban Fund (CJUF) was made up of Johnson Development and Canyon Capital Realty Advisors. These two partners worked together to provide retail services to urban minorities due to the relatively few retail options for inner-city residents. The fund raised $271.7 million in two years to invest in such urban retail projects. The developers were required to invest at least 15% of their own equity in a project and will collect a participation fee of 3-5% of the capital at risk. The fund also required developers to have “guaranteed construction contracts in place with a maximum price outlined in each contract.” It was projected that the fund would earn a ROE of 30% after which the fund would share in additional profits with the developer.

Strategy

The proposed exit strategy of the fund is to sell the project upon stabilization to a REIT or portfolio manager. The investment was to be an “urban revitalization” seeking densely populated, ethnically diverse communities where a short...