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Stern (New York University): Denied

   Following the merger with Midlantic Bank, PNC Bank wanted to expand its real estate lending activities beyond New Jersey to include New York City. Two of the bank's more experienced lending officers began a real estate loan production office on Park Avenue with the intention of financing large-scale syndicated apartment projects. I was selected to be part of the deal team to conceptualize and underwrite the first project, which was a pioneering conversion of lower Manhattan office space into apartment units for one of New York's premier developers. The relationship managers spent most of their energies on the business development aspects of the deal, and I was responsible for underwriting the line of business offering in addition to the financial analysis and credit memorandum. The final analysis provided a great deal of exposure for me within the Bank since it was read by members of senior management, by the capital markets group and by several credit committee members. Additionally, the conversion received a large amount of publicity from the press as it is one of the first conversions of its kind in the financial district. It was featured along with similar properties as the cover story by New York magazine.

   The analysis grew increasingly complicated as we addressed each issue. There were four risks unique to this deal which made it more complex than most. The first risk was the economics of the tax incentives. The project qualified for Mayor Giuliani's newly enacted real estate tax-abatement program because it was a conversion from office space to apartments. This regimen allows for a complicated fourteen-year exemption, which in many ways drove the economics of deal and affected the cash flow model. Secondly, unlike other types of construction, it was the intention of the developers to occupy the building on a floor-by-floor basis, as construction progressed, principally to reduce the net interest expense. This required that rental income be projected on a monthly basis. I developed a model that could run monthly rental income and expense scenarios and determine a break-even point for interest coverage during the construction period. This model was approved by senior PNC credit officers and will be used by the Bank for future residential analysis. Thirdly, the credit facility totaled 70,000,000 dollars, which meant portions would need to be syndicated to other banks or financial institutions because of our desire to share the risk and maximize our yield. Therefore, we worked closely with PNC's real estate syndication group and underwrote the deal to capital market standards. Fourthly, and most importantly, the location of the project, in the downtown Manhattan financial district, was one that offered limited residential amenities to prospective tenants which could significantly impact lease-up. The velocity and pricing of the unit absorption needed to be quantified. However, a lack of comparables forced us to develop lease-up rate and pricing assumptions with little supporting evidence. The biggest question that arose was whether the 500-plus units would lease-up in the projected 12 to 18 months, and if so, would they command the projected rental rates or rates that would cover the debt service? There was a cushion for error but a small one. It is clear why this project is considered a pioneering one and why it was challenging to analyze and underwrite.

   By working closely with the lending officers, I was given the opportunity to research proposed tax legislation, discuss the marketability of lower Manhattan apartment units with appraisers, talk with construction engineers about the conversion process and construction budget assumptions, and work closely with the borrower's financial officers as well as with the Bank's capital markets syndication group. These experiences were valuable to me as an analyst. Through regular group conferences, interviews, site visits, and research we were able to produce a high quality analysis in a short period of time for the "internal customer," the Bank's credit committees, and the "external customer," the borrower. We beat out competing banks, and won the mandate to underwrite and syndicate the transaction. Closing is expected shortly. Demolition and renovation is currently being financed by partner capital and apartments are being marketed. When our loan closes, the first draw will refinance the acquisition costs and return a portion of the partner's equity.

Analysis

This essay is clear and solid enough, but comes across as a little cold. The writer's experience is clearly a significant one which has helped him develop a broad set of skills, but he or she does not go into enough detail about how this experience has personally affected him or her. Too wrapped up in the details of the project, choosing to conclude, for instance, with an emotionless statement about its success rather than the personal or professional development to which it gave rise, the writer seems to have missed the true intent of this essay question. The admissions office is not necessarily interested in the nature of the particular challenge you faced; it wants to see how you respond to challenges and, perhaps even more importantly, how capable you are of evaluating your past experiences in a thoughtful way.