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The Shareholder Online The alumni magazine of Auburn University’s Raymond J. Harbert College of Business

MRED Capstone Project brings classroom to life

AU College of Business capstone

Here’s the mission: Develop a comprehensive real estate proposal to turn 60 acres of an 11,000-acre resort community into a continuing care retirement community. The proposal must include site plans, elevations, a 3-D model, full financial analysis, capital stack, development partnership structure, market analysis and offering price.

Upon completion, prepare a comprehensive presentation for owners, development managers, property managers, and industry executives. Your presentation and written proposal will determine which team will win the project.

You have roughly two months … go!

Capstone review

MRED students share Capstone Project ideas during a planning session.

The Reynolds Plantation – home to approximately 3,700 affluent property owners on Lake Oconee in Greensboro, Ga. — became the center of attention for the Auburn University Master of Real Estate Development’s (MRED) Class of 2013 in the two-year program’s final assignment – the Capstone Project.

A group of 13 students representing a variety of roles in the industry were split into four teams and spent their final semester creating thorough mock plans for the community.

In short, the Capstone Project brings the classroom to life.

“It’s very similar to a real-world situation where you have a small period of time to pair together groups of individual experts and try to come up with a game plan to develop some real estate,” said Hobie Orton IV, Project Manager for Commercial and Residential Development at Biltmore Farms, LLC, in Asheville, N.C.

“Everyone gains experience. Whether you have experience or not, it might help you refine it. You learn something that you haven’t done before. In our particular case, it was the continuing care retirement community of which none of us had really dealt with before, so that was extremely interesting and very helpful to run that from start to finish and put it all together.”

Michael Robinson, Hugh Daniel Endowed Professor of Real Estate Development, Professor of Architecture and Director of the MRED Program, said the Capstone Project, “takes you from project inception all the way through complete development feasibility – all the way with financials, capital structures, and it prepares you in a way that you have a comprehensive view.”

Auburn’s MRED program is a two-year, six-semester online program with residencies offered to real estate developers and executives designed to dramatically enhance their skills in the industry. It is a collaboration between the College of Business and the College of Architecture, Design and Construction.

“The key strength of the Auburn program is that it draws students who are coming from successful careers in a variety of disciplines,” said John Gunderson, Senior Vice President for the Daniel Corporation, which manages the Reynolds Plantation. “They are practicing professionals building on real world experience rather than approaching issues from a purely academic side. Their maturity and business acumen is immediately evident.”

MetLife purchased Reynolds Plantation last August, and engaged Daniel Corporation to manage the day-to-day operations and future development of this award-winning community.

MRED students enjoy a number of trips to development venues around the world, meeting with developers and contractors. But the crown jewel of the class is the sixth-semester Capstone Project, where students are commissioned to develop their own plans for an actual, major real estate project.

The Class of 2012 was charged with developing a plan for Parcel 9 of Boston’s “Big Dig” beneath Interstate 93, a 36,000-square foot urban area. Robinson said the Class of 2014 will be involved in developing a project in Midtown Atlanta.

“The Capstone Project really encompassed all of the components of the five semesters into one project,” said Beau Bevis, President and Qualifying Broker at ARC Realty in Birmingham, and member of the MRED Class of 2013. “You did a pretty in-depth market study, you did a pretty in-depth financial model and you also did a pretty in-depth land plan. It took all of the semesters and courses and combined them into one project.”

The Reynolds Plantation is a resort vacation destination for many, complete with six world-class golf courses, and numerous recreational opportunities on the lake. Owned by MetLife, it is home to approximately 3,600 permanent home-owners.

But as many of the Baby Boomers in that group advance in age, where will they live? Who will take care of them?

Gunderson noted, “Real estate is one market for that.”

Thus, the idea for a continued care residential community at the Lake Oconee resort was born, but questions remained.

“Where do you put it? What are the price points? Does it make sense? How would you structure it, finance it and market it?” asked Gunderson, who believes plans to develop the retirement community could be introduced by the end of the year.

Through the Capstone Project, MRED students offered answers, much like a consulting group would. After two months of research and preparation, the teams presented their ideas on May 3 before executives from Daniel Corporation and MetLife.

“They (executives) felt that all of the proposals were very professional and on target,” Robinson said. “What all of the projects did was test the feasibility of some of the sites that Daniel had selected as possible sites.”

Gunderson praised the students’ work, calling the projects “unique” and “creative.”

“We got a lot of input,” he said. “The outcome for us was very good. We challenged them and they responded with a product that proved very helpful in the analysis of adding a continued care retirement community to the larger resort master-planned community that was already in place.”

The winning team, the Compass Group, proposed a three-tier plan that included unassisted living to assisted living to a skilled nursing facility.

The winning team, the Compass Group, proposed a three-tier plan that included unassisted living to assisted living to a skilled nursing facility.

Nicknamed “The Compass Group,” the project presented by Orton, Bevis, and Creighton Call, Project Manager at Crescent Resources, LLC, in Charlotte, N.C., was declared the best by executive judges.

“The Compass Group spent a lot of time digging into the market and analytics behind what they were trying to solve,” Gunderson said. “From their market analysis to their development and financial plan, the presentation was well constructed and withstood some very detailed challenges from the judges in defending their proposal. The quality of the work was a strong reflection of the rigor and quality of the MRED program and its faculty.”The Compass Group’s design included 375 units with varying degrees of assisted living – developed in three phases — at a cost of $125.5 million. Total square-footage of the building space was projected to be 561,000. Despite the cost, the group projected 30-year revenue (unit rent and care facility fees) generated from the project to be $1.2 billion.

Bevis said the phased plans, from independent to assisted living, would begin to draw income “over the course of four years” as residents move into assisted living facilities.

“The financial models make sense because of the demand,” he said. “The people didn’t want to leave. They didn’t want to chase their children around the country as they aged. They were going to age in place and they needed a facility where they could age in place and their children could know that they were cared for.

“We felt the highest demand was for people leaving their single-family homes that are existing residents within Reynolds and just downsizing to the assisted living component, and then all the way to the skilled care, which will require some licensing. There was no place across town for them to go. For these affluent people that live at the Reynolds Plantation, 5,000-square feet is a small house. There was no continuous care facility for an affluent person anywhere near that area. It’s designed for a resident of Reynolds Plantation and focus group showed that they really had such a strong sense of community.”

The Compass Group also used a market study from select households in Atlanta’s affluent Buckhead community, Augusta, Ga., and Overland Park, Kan. The study, in a report, showed that “capturing one percent of these markets studied would result in 95.56 new Reynolds Plantation residents per year,” and “including the existing 35 percent of Reynolds residents interested in moving to the Reynolds CCRC would result in a demand for 410 residents in the first year alone.”

Bevis believes teamwork among professionals is a great learning experience in its own.

“Working together collaboratively with people that have different skill sets certainly does make a project like this go together better because there is no real learning curve for the guy that does financial modeling or the guy that does the market study and or the guy who does the site plan,” he said.

Robinson noted that teams were given their choice of five sites on the property to develop – and all four teams chose different locations. He said key factors involved in the project included, but were not limited to, construction cost, operating cost, financing, development structure, cost of units and rental charges. Focus groups of 170 Reynolds residents were also interviewed during the feasibility development stage.

The Compass Group also used a market study from select households in Atlanta’s affluent Buckhead community, Augusta, Ga., and Overland Park, Kan. The study, in a report, showed that “capturing 1 percent of these markets studied would result in 95.56 new Reynolds Plantation residents per year,” and “including the existing 35 percent of Reynolds residents interested in moving to the Reynolds CCRC would result in a demand for 410 residents in the first year alone.”

Seeds for the Reynolds Plantation/Capstone Project were planted during a conversation between Gunderson and Robinson.

Daniel Corporation and MetLife executives listen to Capstone Project presentations.

Daniel Corporation and MetLife executives listen to Capstone Project presentations.

“I’d met with John on several occasions to talk about the MRED program and John had recommended several people to our program,” Robinson said. “As we began to talk about the things we were doing, I told him about the Capstone Project. He thought that the Reynolds Plantation would be a good site for students to use as a Capstone Project. He asked us to propose whatever we thought would be appropriate for the students’ project. (Gunderson) took a group of faculty on a tour of Reynolds Plantation. When we returned, it was pretty obvious that a feasible project – as a substantial advance in moving the Reynolds Plantation towards a diverse 21st Century resort community – would be a continuing care retirement community.”

Gunderson hails the MRED program.

“What you (Auburn) have created through the MRED program is brilliant and crucial for the real estate industry,” he said. “It’s a benchmark for other programs to follow. It’s multi-disciplined – just like the real estate industry is, and I believe its graduates will prove to be valuable industry leaders for many years into the future.”

An in-depth story about Auburn University’s MRED program can be found here.

For more information on the Auburn University MRED program, visit http://mred.auburn.edu/index.php, email mred.info@auburn.edu, or contact Jana Smith, Assistant Director of Executive MBA Programs, at (334)-884-5078.

The Auburn University College of Business is a preeminent public institution in the Southeastern United States consistently rated among the nation’s top public colleges and schools of business by such publications as U.S. News & World Report and Forbes Magazine.

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