Egy ökör csak ökör marad ha Budapeströl Bécsbe hajtják is. (“An ox remains an ox even if driven from Budapest to Vienna” – A Hungarian proverb) Walking out of a grueling three-hour project team meeting on March 21, 2003, 32-year-old Dr. Philipp von Wilmowsky took a deep breath and smiled to himself. "This project is like a giant jigsaw puzzle," he thought. "It was fun, time consuming, but would he be able to complete it with all the right pieces in place?" As director of Hungarian operations for ECE proiektmanagement, a German real estate development conglomerate, Philipp had worked for two years on a 30,300 square meter (m2) €80 million shopping center project located along the Danube River in the city of Györ (pronounced "jyur). Lining up four credit anchor tenants had been easy; finalizing the site acquisition, the permits, the design and the financing was going to be a lot tougher. As he mulled over the project during the 45-minute drive back to Budapest, Philipp was concerned about next week's presentation in Hamburg to Alexander Otto (HBS MBA '94), Philipp's boss and ECE's Chairman. In recent discussions, a potential equity investor had questioned some of Philipp's market assumptions and indicated that the project costs were too high to meet their return requirements. ECE would be forced to choose between altering the design of the building to make it less expensive and trying to continue negotiations with the prospective investor. With only a few months to finalize the details of the project, Philipp would have to present the tradeoffs of the possible design options to Otto and other equity investors. As he settled into his ritual Friday evening flight back to Hamburg, Philipp acknowledged that this would be yet another working weekend and he would have to wait to celebrate the first day of spring.
Philipp had joined ECE with an unusual background for the real estate business. He had earned two law degrees, including a joint doctorate from the University of the Saarland (western Germany) and Georgetown University, and had founded a successful mail-order company for pet supplies. From his first days with ECE, Philipp had been mesmerized by ECE's Hungarian projects. The downside was that he had now been traveling weekly to Hungary – away from his wife and home in Hamburg – for two years. In planning this project, Philipp had studied Hungary's retail prospects and Györ's regional economy; he believed the site had great potential as the third center ECE would develop in Hungary. Hungary's economy and imminent entry into the European Union could lead to increased purchasing power and retail consumption per capita. Györ was a major regional thoroughfare, but lacked a significant shopping center. ECE proposed a cost-effective regional shopping center in central Györ, but its design was constrained by the city's development plan and faced a daunting permitting and approval process. Several questions remained in Philipp's mind. Did the market in Györ have the potential to support the planned shopping center and deliver the returns investors would demand for taking on the risk of investing in an emerging market? Should he propose a less expensive design to satisfy the equity investors despite the city's clear opposition?
Philipp was at the nexus of a whirlwind. He knew that his ability to manage the myriad details of the project and balance the competing needs of customers, tenants, investors, bankers, and government officials would not only impact the project's returns but determine whether it would happen at all.
Hamburg-based ECE Projektmanagement G.m.b.H. was founded in 1965 by Dr. H. C. Werner Otto, who envisioned adapting U.S. models for shopping centers to suit the specific needs of the largely decentralized European retail market. The company was the European market leader in the development of city shopping centers, with 73 centers under management comprising more than two million...