The bankers at Goldman Sachs (NYSE:GS) have a reputation for being a competitive group, and they can now add Olympic dreams to their list of ambitions. Last Friday, the Financial Times reported that Goldman is advising the city of Fukuoka, Japan, on its bid to host the 2016 Summer Games and is willing to commit its own capital to infrastructure projects in this context.

You might think that Goldman, which provides strategic advice to blue-chip corporate clients and actively trades in global markets, is straying outside its areas of competency. But bear in mind that the investment bank is already the No. 2 golf course operator in Japan -- Goldman Sachs Realty Japan controls Accordia Golf, which manages approximately 90 courses. In fact, spurred by the combination of depressed real estate prices and low interest rates that resulted from the collapse of Japan's real estate bubble in the early 1990s, U.S. private equity investors have been extremely active in Japan's real estate market ever since the late '90s. It is reported that Goldman Sachs has invested $6 billion in Japanese property since 1997, while Morgan Stanley (NYSE:MS) put $8 billion to work in the same market in 2005 alone.

Fukuoka has earmarked Suzaki Harbor as the potential site for the Games and would redevelop the area at an estimated cost of $4 billion. According to the Financial Times, Goldman estimates the project would yield an internal rate of return (IRR) of 15%-30%, based on very conservative assumptions. That range is certainly consistent with the 20%-plus rates of return that opportunistic real estate funds typically target.

While the numbers look good on paper, there are a number of problems with Goldman's plan. First, there may be a conflict of interest in advising Fukuoka on the commercial viability of being an Olympic host city while being an investor in a related infrastructure project. The overall economic impact of the Games and the profitability of specific projects should be analyzed separately. Given the enormous costs of hosting the Games, the specter of economic loss can't be taken lightly -- the last host city for the summer Games, Athens, is reported to have spent at least $1.2 billion on security alone; the 2004 Olympic Games resulted in a significant loss.

However, the preceding discussion could well be moot, as a difficult hurdle looms. On the same day that the Financial Times broke the story of Goldman's project, Japan's Yomiuri Shimbun newspaper reported that the Japanese Olympic Committee (JOC) had given Tokyo a higher evaluation than Fukuoka as the country's candidate to host the 2016 Games. What were the JOC's concerns with respect to Fukuoka's bid? At the top of its list, the JOC questioned Fukuoka's ability to obtain a sale agreement from landowners in the Suzaki district, the location for the main arena. The JOC is set to make its choice Aug. 30.

Earnings Growth (Est. 5 years)

P/BV

Forward P/E

Goldman Sachs

15.0%

2.2 times

9.0 times

Peer Group

11.8%

1.6 times

11.1 times
Based on closing prices on Aug. 26 for a peer group containing Bear Stearns (NYSE:BSC), Lehman Brothers (NYSE:LEH), Merrill Lynch (NYSE:MER), Morgan Stanley, and JPMorgan Chase (NYSE:JPM). Average P/BV and P/E multiples are weighted by market capitalization. Average earnings growth rate is unweighted.

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Fool contributor Alex Dumortier has no beneficial interest in any of the companies mentioned in this article. He welcomes your (constructive) feedback. The Motley Fool has a strict disclosure policy.