David Walentas' Two Trees Management Company: A Case of Deliberate Entrepreneurship
Rahman, Noushi, Naumi, Fabiha, Journal of the International Academy for Case Studies
This is an entrepreneurship case in the real estate industry (in a New York neighborhood called DUMBO). DUMBO is one of the most chic neighborhoods of New York City, specifically Brooklyn, and the revitalization has been a "planned gentrification" as opposed to a "natural gentrification" process. This case primarily focuses on (a) entrepreneurial traits and behaviors in the context of real estate development and(b) relevant corporate strategies-horizontal and vertical integration-for the entrepreneurial firm. The secondary focus is on the resource based view. This is a complex case and it requires some prior understanding of strategy concepts. It will be appropriate as a business policy case for senior undergraduate as well as graduate students. Also, it may be used exclusively as an entrepreneurship case with junior and senior undergraduate students. Considering the length of the case, it needs to be pre-assigned; students must have read the case before coming to the class. Questions about the case should also be pre-assigned to point students' thinking in the desired direction. Actual analytical discussion should take roughly 10 minutes per question discussed, and another 5 to 10 minutes would be enough to provide a case summary in class.
Real estate entrepreneur-turned-mogul David Walentas has deliberately transformed Brooklyn's DUMBO neighborhood, where he holds about 3 million square feet of building space. Walentas has worked methodically to give the deserted area of DUMBO a neighborhood feel. Initially, he allowed artists to move in for very low rent. As artists moved in, so did culture, sophistication, and the need for art-related things. This gave rise to multiple galleries, design studios, and printing services firms in DUMBO. With an increasing population in the neighborhood, the government was more willing to invest in redeveloping State-owned properties in the area. This had strong positive spill over for Walentas' Two Trees Management Company.
At an estimated current going price of $700 per square foot, Walentas' 3 million square feet real estate holdings are worth about $2.1 billion. With development work in DUMBO factory buildings going full-steam, however, Walentas now faces a dilemma concerning his growth strategy. Once these buildings are all leased out or sold, the growth of his company Two Trees Management will stagnate. Thus, despite tremendous success, what the future holds for Two Trees is anyone's guess.
By 2001, DUMBO (acronym for Down Under the Manhattan Bridge Overpass) was dubbed the most chic and up-and-coming neighborhood of Brooklyn. Comparing DUMBO's chic-ness to the most art-focused neighborhoods of Manhattan, New York Times quipped, "DUMBO is the new SoHo." Under the careful strategizing of real estate entrepreneur David Walentas, DUMBO has changed from a dilapidated graveyard of desolate buildings to a vibrant and happening residential-commercial hotspot.
Gentrification of DUMBO has been focused and quick. While urban scholars recognize gentrification as a gradual and slow process of neighborhood reversal through a variety of contributions from developers, real estate businesspeople, landlords, and the upper-middle class (Smith, 1982), such has not occurred in DUMBO. Control of a large portion of the DUMBO real estate allowed David Walentas the ability to act as a catalyst to speed up the gentrification of the neighborhood.
Through his company Two Trees Management, Walentas has reaped returns of almost onehundred times that of his initial investments! As great as it sounds, Walentas is faced with a major dilemma among sell-now, sell-later, and rent-now options.
Walentas is converting his third building to condominiums this year. He currently owns 15 buildings in DUMBO. Prices keep increasing in the area, with the latest offering being in the range of $700-900 per square foot. So, converting all of the buildings now would mean making less money than is possible (assuming prices will increase further). …