Anne Shea, assistant vice president at the Curators' Fund (The Fund), is responsible for investing roughly $80 million in real-estate assets. Less than three years ago, Anne invested $40 million into a commingled fund run by AMB Institutional Realty Advisors, Inc., a leading pension fund advisor and asset manager. She had been pleased with The Fund's relationship with AMB; investing with AMB provided a cost-effective, value-added means for The Fund to directly own property. Recently, AMB proposed to consolidate all the properties under its management into a REIT and to take the new REIT public. Anne faces a decision: consent to the roll-up by exchanging her shares in the commingled fund for shares in the REIT, or sever ties with AMB by liquidating her position in the commingled fund at a price equal to the fair market value of the assets before the roll-up and public offering. In addition to the focus on REITs, qualitative issues in the case include the prevalence of conflicts-of-interest in most aspects of the highly fragmented real estate industry. The mechanics of a consolidation, the valuation of a management business, and the concept of "franchise value" are also addressed.
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