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Market Analysis of Financial and Economic Damages to Shopping Center Developer

Accumyn prepared a detailed analysis of the deteriorating capital markets during the 2007 financial and credit meltdown and the impending sub-prime mortgage crisis to derive a but-for calculation that would represent what could have been done by a shopping center developer had they been informed in March 2007 of their anchor tenant’s intent not to lease. This analysis included a comparison of the value of the center based on spring 2007 market conditions and conditions at the time of trial in late 2009.

The shopping center developer initiated a project in The Woodlands, Texas, to build a Class-A center under the assumption that the anchor tenant, a high-end organic grocery store, would be occupying the most visible space to attract customer traffic and enhance its appeal to other tenants and institutional investors. However, the grocery tenant allegedly decided to terminate its lease several months before disclosing to the developer. The alleged misrepresentation coincided with the 2007 financial and credit meltdown and the impending sub-prime mortgage crisis. Due to the anchor tenant’s delayed notification, the developer experienced difficulty in filling the remaining space and subsequently had to develop the center in a market characterized by scarcity of credit funds, higher required rate of returns from equity investors, and a poor overall prospect of the U.S. economy; this resulted in higher capitalization rates and a lower market value of the center. The Accumyn team assisted the developer by preparing analysis of various budgets based on different development scenarios, including net rentable square footage, lease rates, capitalization rates, and discounts rates in various timeframes.