360 State – Real Options

Series: Yale School of Management
Format: Raw, online case
Topics: Finance, Economics, Real Estate,
Initial date of publication: July 2012
Geographic setting of case: United States
Access:  Available to educational institutions by emailing case.comments@yale.edu.

Overview: In 2010 developer Bruce Becker completed 360 State Street, a major new construction project in downtown New Haven. The building was a 32-story high-rise with 500 apartments, a parking garage, and a grocery store on the street level.

The building was a remarkable accomplishment. Built during a recession in a neighborhood that the city's elite avoided, the development became an immediate success. In less than two years, the apartments were almost fully occupied, the grocery store was attracting 8,500 customers per week, and other landlords on the block began to open new businesses. For many New Haveners, the achievement of 360 State Street proved that after years of post-industrial decline, the city was finally experiencing a renaissance.

Just west of the apartment building on the corner of Chapel and Orange Streets, a 6,000-square-foot pocket of land from the original parcel remained undeveloped in 2012. Becker was considering constructing a four story building with the upper floors leased to law offices or other professional service firms with a still undetermined use for the ground floor.

Becker had a number of alternatives to consider in regards to the site. He also had no obligation to build. He could bide his time. But Becker also worried about losing out on rents should he wait too long. Under what set of circumstances and at what time would it be most advantageous to proceed?