Paper Topic:

Real Estate Finance

Market is Gyor

The retail market , in general , in Hungary is on the upsurge . Added to this the retail the purchasing power index of Gyor at 115 .9 is higher than the national average . This shows that there exists a potential for retail market in Gyor

However , the feasibility of starting off a stores on the lines that ECE is planning , one would have to have a close look at the potential opportunities . The following table presents a cost-benefit analysis

Cost item Area in Sqm Cost /sqm Site acquisition 65000 6600000

p Construction of buildings 32500 1639

Ground parking 600 1500 900000

Rooftop parking 600 6000 3600000 Rent from anchors 14300 108 1544400

In-line and other stores 1600 264 422400

CAM fees 32500 60 1950000 Difference in cost and revenues 25 ,199 ,500 .00 Assuming no increase in inflation

As one can see ECE would have a deficit of Euro 25 million , if only the rentals are a source of revenue . Hence it would have to enter into an agreement with all tenants for garnering a percentage of sales as additional revenue . In this case ECE would have to earn Euro 2 .5 million through sales commission

Assuming a high percentage for ECE from sales (10 , this would mean all tenants would have to have sales in excess of Euro 25 million every year

Design option

From Gyor 's master plan perspective , ECE would have to construct two buildings and connect them through a pedestrian bridge on the second floor

Phillip would not like this design as it is expensive to construct . He prefers a single building design

Structuring a deal

In this particular deal with ECE , as an equity investor , I perceive the risk to be more . This is because Gyor is a new territory and largely unexplored . However , I see an opportunity in terms of demand for retail business

Hence I would look for a fixed rate of return , from the date the project gets operational . For taking the risk of investing before it gets operational , I would look to have my partner commit for a fixed percentage of profits

Sensitivity analysis

While conducting a sensitivity analysis , one needs to consider the impact of each of the variables , like government policy and the like . In this case Phillip assumes the project to start in March 2004 . However this is dependent on Raba vacating the premises and ECE getting 40 odd permissions on time . Hence Phillip would have to provide for a buffer time for each of the factors and then arrive at the earliest start time

Similarly when he has assumed rentals for both anchors and in line stores , he would have to look at a national and regional average . This is to neutralize the fact that some of the investors feel that the anchors rentals are higher than the average and rentals for in line stores are low . The rentals decided should also have an annual revision clause to take care of any inflation during the lease period...

3 pages

40.0 KB

Free sing-up