Construction project Evaluation and development report to the senior manager.

Assessment Task
Objective: To respond to an industrial scenario in a professional and objective manner to give clear advice in which a client can have confidence.

The Client
Coronation Investments plc is a property company that develop multi-unit city centre retail developments, which are subsequently sold when most of the units are let. They only obtain funding from their merchant bank when a proportion of a?blue chipa a (household name) companies, which are known as a?anchor tenantsa (eg M&S, House of Fraser), has signed lease agreements for units in the developments.

The Project
Coronation Investments plc has the option to purchase a site in the centre of Southernsby a large south coast town in the UK. Current negotiations with major retail chains show strong interest to take units.

The key trading times for all the lessees are early summer and Christmas and their (lessees) preferred move-in dates are April and October but they wish to obtain access as soon as possible. It is likely that other companies who wish to take units will have the same timing requirements. These are key dates and about 2 months will be required between obtaining possession and completion of fit out in each case. Missing these dates could mean withdrawal from the deal or other disputes due to the delay until the next trading time.

The planned development is a prestigious mix of retail and office development of 6100 m2 lettable floor space. The 3700m2 retail space will be on the ground and first floors built around a central atrium. The 2400m2 of office accommodation will be located at first and second floor level. A 200 space car park will be constructed at second floor level and accessed via ramps. The building is to be of relatively simple design, constructed of brick clad steel frame with pre-cast concrete floors. The building will have a relatively simple M&E system.

The public areas will be completed to a good quality standard; however the shop units are to be let as shells, although the heating and ventilation will be in place.

The 0.6 hectare brown field site is in the city centre and is currently occupied by an existing retail unit fronting the major road (North Road). There is a 10 storey office block and a supermarket adjacent to the site fronting onto North road. To the rear of the site is a park bordering a railway line, there are service roads adjacent to the site and a network of existing service roads at the rear providing access. The land is available on the market and a price has been negotiated. The vendor has agreed to provide an option on the land for 21 days.

A copy of Coronation Investmentas development appraisal is attached for your information.

APPRAISAL


Assessed Value A?

Income:
Car Park 160 public spaces say 300,000
40 reserved office spaces say 104,000

Public areas no rental yield

Kiosks 2 say A?10,000 20,000
Atrium Cafes 1 say A?20,000 40,000

Shops 3700m2 A?180/m2 666,000
Offices 2400m2 A?210/m 504,000

Total Income A?1,634,000


Yield say 7% yp14.2857 (years purchase)

14.2857 x A?1,534,000 A?21,914,263 (Capital Value)






Estimated Costs

Demolition & treatment of land 1,200,000
Build Costs:

3,900m2 shops (shell & core) A?575 average costs 2,242,500
2,600m2 offices A?1350 3,510,000

Public areas
1400m2 A?1850 2,590,000

Lifts (no escalators) 270,000

Ancillary Costs

Access roads, ramps, car parking, landscaping, services etc 1,200,000

Professional fees
Architect, Quantity Surveyor, Structural Engineer 1,100,000


Contingencies
Say 5% of costs of construction 605,000

Inflation until tender Say 280,000
Inflation to mid point in construction programme 700,000


Finance
Short term finance (construction period) 900,000
Short term finance (letting period) 410,000

Letting and sales fees 185,000
Marketing and advertising 70,000
15262500

Developers profit 15% 2,290,000


Land cost (estimate) 2,900,000
Finance and fees on land purchase 580,000


Total estimated costs 21,032,500





Objective:
To respond to an industrial scenario in a professional and objective manner to give clear advice in which a client can have confidence.

Task

Prepare a draft report to your manager who will subsequently have to prepare a detailed report to the chairman of Coronation Investments. In your report you are required to:-

i. Critically examine and justify the viability & feasibility of the appraisal in relation to the business case from appropriate published data.
40%

ii. Critically assess risks in the project and discuss strategies to cope with them.
40%

iii. Consider the effects that if during the development the yield rises to 8% because of market pressure.
10%


Report format 10%

You are required to state all the assumptions that you have made.