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1
RETAIL DEVELOPMENT PROJECTAdapting to Changing Market Conditions
Marketing 4411Case 6 T
Malisa ChhuonDemetre Christou
Blair Stewart
3
ASSUMPTIONS
Marketing team from BDM Properties Developer wants to abandon retail-mixed use
project by November 30th,2010
Mitigate risk / loss and avoid 2% surtax
Sell land and build-out plans to a developer
4
Action Plan
Measure &
Evaluate
Act
Plan
Past 7 days have shown economic changes affecting cost of money
Must re-evaluate strategy
7
Market Update
GO CRITERIA UPDATE
GO Criteria dependent on:
1. Is there a need for serviced land within this market?
North Surrey (South Whalley)
2. Can we mitigate risk & loss?
8
NEW DEFINITION
Market and sell serviced land
Include development proposal
Justifies land-price increase
Economical
• Prime rate has increased to 3.25%
• Canadian banks raise prime rate by 1.25%
• Mortgage rates increased by 1.25%
– Commercial mortgage: Median rate is at 5.25%
• Jan 1, 2010 – 2% surtax on all Real Estate transactions
MARKET UPDATE
Social
Consumer confidence in British Columbia:• 92.8 points
– 8.3% from 100.5 points
Canada consumer confidence• 84.8 points
– Fell 7.8 points
MARKET UPDATE
12
Cap Rates
Retail: 6.3% - 6.8% Office: 5.7% - 7.4%
Rising interest rates = Rising cap rates Must be taken into consideration when re-
evaluating contingency plans
Market Update
COMPARISONS
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13652 108th Ave Size SF: 15,768 $725,000 $45.97 / sq.ft
10662 King George Hwy Size SF: 102,366 $6,480,000 $63.30/ sq.ft
10315 133rd St Size SF: 43,560 $3,995,000 $91.71 / sq.ft
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LAND COST - ASSUMPTION
Maximum we were willing to pay (13% Profit): $4,200,000.00Amount we paid for the property in April, 2010: $3,000,000.00
$69.52per square foot
Median of comparables: $63.30per square foot Close to our location Not a corner lot Further north (Whalley) More competition within area
$600,000.00 higher than assessed value
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BUSINESS CASE
“GO” CRITERIA
GO Criteria: Is there a need?
Can risk be mitigated?
YES
YES
OCP suggest need for more commercial businesses; our land is favourably zoned to accommodate
the need
Comparisons show that owner can still recover investment costs. Potential for profit.
19
BUSINESS PLAN
Vision
To Market and Sell: Serviced bare-land in Whalley to a developer for $4,280,000 Include build out development proposal which reflects our
end price
UVP: Unique build-out plans and favorably zoned property located
strategically in up and coming community
20
BUSINESS PLAN
Financial StrategyFinancial Summary Budget Price per sq.ft % of Project Cost
Land Cost $ 4,280,000 $ 30.10 11%
Development/Construction hard cost $ 24,190,000 $ 169.89 62%
Soft and financing costs $ 4,500,000 $ 31.74 12%
Profit $ 4,000,000 $ 28.04 10%
Marketing costs $ 935,000 $ 6.57 2%
Contingency $ 1,270,000 $ 8.95 3%
Total $ 39,175,000.00 $ 275.28 100%
21
BUSINESS PLAN
Financial Strategy
Financial Summary Budget per sqft of gross
floor area % of Project
Cost
Land Cost $ 3,000,000 $ 21.07 70%
Financing costs $ 130,700 $ 0.92 3%
Profit $ 958,560 $ 6.73 22%
Marketing costs $ 190,740 $ 1.34 4%
Total $ 4,280,000.00 $ 30.06 100%
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BUSINESS PLAN
Contingency Plan
PLAN B
Sell land at $3,750,000 Decrease profit to 10% Increase developer profit to 12%
Sell land at $3,200,000 Increase in developer profit to 13%
23
BUSINESS PLAN
Contingency Plan
PLAN C If market conditions turn favourable
Example: Increasing lease rates, lower interest rates, etc.
Reassess and possibly build-out according to original plan
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Project Timeline Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10
Task
Market Research
Land Acquisition
Project Design
Land Survey
Municipal Approval
Marketing
BUSINESS PLAN
Action Plan
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BUSINESS PLAN
Summary
Vision
Execution Strategy
Contingency Plans
Measurement & Evaluation
Action Plan (Timeline)
29
IMC PLAN
Target Markets
Private Investors Focus on Real Estate
Qualified Financial and Market
Experienced
Seeking new investment Opportunities
Trusts & Syndicates Focus on acquisitions + Leasing
Based in Vancouver
Diverse portfolio Retail, Industrial, Office
Seeking new investment Opportunities
Local Developers Focus on acquisitions + Leasing
Based in Vancouver
Diverse portfolio Retail, Industrial, Office
Seeking new investment Opportunities
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IMC PLAN
Target Market
Potential InvestorsSimon Property Group Bucci Group
General Growth Properties CBL & Associates Properties Inc.
Kimco Realty Corp Mills Corp.
Developers Diversified Realty Terrex Real Estate Group
The Inland Real Estate Group of Cos Anthem Properties
Onni Group Porte Realty
Macerich Co. Westfield America
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IMC PLAN
Market Target
Simon Property Group Bucci Group
General Growth Properties CBL & Associates Properties Inc.
Kimco Realty Corp Mills Corp.
Developers Diversified Realty Terrex Real Estate Group
The Inland Real Estate Group of Cos Anthem Properties
Onni Group Porte Realty
Macerich Co. Westfield America
Potential Investors
33
IMC PLAN
Market Target
Developer / Development Manager / Project Managers
Retail, Commercial, & Residential portfolio
Experience and success in Surrey
Company Principals are knowledgeable and successful
Panorama Place(Mixed use Retail and Office)152nd and King George Hwy
34
IMC PLAN
Market Target
Developed similar projects
Based in Vancouver
Focus on income-producing real estate
Diverse portfolio Retail, Industrial, Office,
35
IMC PLAN
Market Target
Diverse development portfolio
Similar developments in our area (Guildford)
Opportunistic developers
Successful developments in GVRD (including Surrey)
36
IMC PLAN
Market Target
40+ years of experience in GVRD
Diverse portfolio
Experience in Surrey
10+ commercial properties in GVRD
Successful track record
37
IMC PLAN
Budget Analysis
Marketing
Creative $10,000
Advertising/Printing/Signage $20,000
Commission (3%) $85,600
Miscellaneous (Car, Insurance, Gas, Cellphone) $15,000
Contingency (10%) $13,060
Total Marketing Costs $143,660