Real Estate Management in Guildford - Essay Example

Real Estate Management in Guildford Abstract: This short analytical course work of mathematical calculations on property strategy and funding presents a preventive and meticulous planning over real estate business. ASSIGNMENT 1 A developer has acquired a site in Guildford which is zoned for B1 use in the local plan. The site was acquired six months ago for £10,000,000 excluding any on costs and fees. Since that time the developer has obtained outline planning consent for three buildings each of 2,800m2 GEA and the first of these has been pre let at £320 per m2 NIA. To reflect market conditions the other two buildings will be built over a two year period and let speculatively. Market rents in the area are £330 per m2 NIA and ARY for this type of building is 6.5%. Using the figures provided and making any reasonable assumptions prepare the following advisory calculations (i) A development appraisal to predict developer’s profit for the completed scheme. Your appraisal should be prepared both in conventional format and by using a spreadsheet. Briefly comment on the accuracy of both methods. (30 marks) (ii) Returns for developer and fund if the scheme is funded long term by (a) Profit erosion with priority yield (b) commercial mortgage and (c) forward sale. Comment on the advantages and disadvantages of each method for developer and fund. (30 marks) TASK SOLUTION Investment incurred acquiring the site at Guildford : GBP 10,000,000 (B1 ZONE) Additional expenses needed for the site in full possession: GBP XK (XK number relates to actual other expenses) Total Amount of prime investment followed in the process: GBP 10,000,000+ XK (Total acquired area intact 2800 m2x3=8400m2 GEA) Revenue from the first phase let out each month (2800x 330): GBP 9, 24,000 Revenue from the first phase let out annually (924000x3) : GBP 1, 108, 800 Deduction Revenue calculated from the proposed each B1 Zone Estate site: GBP 1108800 ARY calculation @ 6.5% : GBP 72072 Net Income from each site at Guildford : GBP 1036728 Annual revenue from each proposed site: GBP 1036728 Annual revenue from the entire proposed site: GBP 3110184 (1036728x3) Two years revenue from the entire proposed site: GBP 6220368 (3110184x2) Economy of the project Consolidated Liabilities as profiled therein Construction cost n1 Tax payment n2 Maintenance n3 Insurance cost n4 The other cost assigned as: GBPn1+n2+n3+n4= YP Hence revenue accumulation: GBP 6220368-YP Face value of the site : GBP 6220368-YP Approximate commercial value of the site GBP 12440736-YP (6220368x2; very practical) An Appraisal [Part 1, section I] Realizing the lucrative earning potentiality of the clustered land and building at in Guildford B1 zone with high commercial value of properties it is worth to invest for double fold profit with minimum risk factors. It has been observed that a mere investment of GBP 10, 000, 000 straightway get an yield of 62, 203,68 while having the face value of the property integral. A real estate appraisal is a service performed by a licensed appraiser, who develops an opinion of value based upon the highest and best use of real property estimated the price that may go in multiple of ten in next two years.. The highest and best use by our recent client after an innovative beautification produces the highest value for the land. This use is based on four parts; physically possible to acquire through our installment facility, appropriate estimation without any hidden cost, legally free from any incumbent, and economically feasible. Also of importance is the definition of the type of value being developed having its high market value and quick sale value. It is important to distinguish between Market Value and price of the property in Guildford highly commercial zone of the residential site.. Market value is its fluid concept, ever changing into ascending order, while price is a historical fact at the time of a transaction while acquiring the land. A price obtained for a specific property with mere GBP 10, 000, 000 specific transactions definitely represent that property's market value: special considerations may have been present, such as professional relationship between the buyer and seller, or else the transaction may have been part of a larger set of transactions in which the parties had engaged for further negotiation. Another possibility is that a specific buyer would be willing to pay a price higher than the market value. Such situations raised in our corporate finance when a merger or acquisition is concluded at a price which is higher than the value represented by the price of the underlying stock. The usual rationale for these valuations is that the 'sum is greater than its parts', since full ownership of a company entails special privileges for the buyer for which the party is willing to pay. It is the consolidated reporting profile that read that the real estate appraisal that price obtained under a certain transaction is indicative of market value FUND ANALYSIS [part 1, section ll] Since the land in Guildford was acquired with a long term bank loan against the collateral security of the same possession in addition to our good will and prospective futuristic project, we are highly meticulous to calculate the price in realistic terms as per the directives of our banker. The interest rate is cumulative 11% per annum which will be adjusted with our long term fixed deposit with the bank. Hence we need not pay any material interest to the bank. All financial instruments compete with each other in the market place. Yield is one part of the total return of holding a security. A higher yield allows the owner to recoup his investment sooner, and so lessens risk. But on the other hand, a high yield may have resulted from a falling market value for the security as a result of higher risk. The yield of a bond agreed between the bank and out firm is inversely related to its price today: if the price of a bond falls, its yield goes up. Conversely the bank appreciates the development scheme for the rapid growth of the locality in its commercial aspect by the facilitation of our scheme. Bank also admires our first phase work while mentoring the scheme for the other two in next two years. Mergers and acquisitions, consolidation and roll-ups have been around for last six months and are not foreign to the real estate industry in our initiative. Historically the acquisition of one real estate company by another has been the industry norm. But the industry has also seen a number of new players enter the industry, such as Metropolitan which acquired Guildford B1 Zone. We have another innovative scheme to sale equity share in the market in order to pay off the bank loan under strict consideration by the board of directors. The major disadvantage we are facing now with the bank is documentation while other dealings being still cordial. We need to acquire consent and letter of approval for every phase of our construction work apart from other government permission. A commercial mortgage is a loan made using real estate as collateral to secure repayment that sometime stand as hindrance to our business growth. Guildford Zone B1 commercial mortgage is similar to a residential mortgage, except the collateral is a commercial building surrounded in 2000 square feet of land in the heart of the town. The mortgage is supplemented by a general obligation of the our firm, which makes the debt payable in full even if foreclosure on the mortgaged collateral does not satisfy the outstanding balance. A forward contract is made between our firm and Milton & Company to sell the asset with further up gradation of its design (which can be of any kind) at a pre-agreed future point in time. Milton & Company agrees to sell, for a forward price agreed in advance GBP 420 per m2 NIA while the we have been giving on preset barely with GBP 320 per m2 NIA. The transaction is collaterals, exchange of margin will take place according to a pre-agreed rule or schedule while the insurance company covered its life expectancy in fire or any other natural calamity. A standardized forward contract that is traded on an exchange as futuristic contract with Milton & Company would. Yield us a lucrative profit. Suppose that PVt(X) is the time value of cash flows X at time t of our estate at Guildford Zone B1. The forward price is then given by the formula: The cash flows can be in the form of dividends from the asset, or costs of maintaining the asset. ASSIGNMENT 2 You are acting for a local authority which owns the freehold interest in a town centre site suitable for the development of retail and leisure scheme of approximately 80,000m2 GEA By means of a report advise your client of the options available to it in arranging the development of the site and the risks involved. (40 marks) Project proposal for a Retail and Leisure Scheme In liaison to our Real Estate Company and the local authority a massively beneficial retail and Leisure project could be launched. It will not only benefit the local business class but also the common mass for long expected facility of shopping and recreational park. Hence the project reflects educative, social and economic need of the people. The total area consists of approximately 80,000 m2 which has to be divided in four equal slots splitting an area of proportionate 20,000 m2 GEA. The first slot would be retail shops by the local youths to be given on long term lease whereas a range of about 200 stalls are expected to build for the purpose. The second slot would be a range of handicraft shops to rehabilitate the home made productions of the locality. The third raw which is designed as children’s entertainment park supported with museums, swimming pools, dance floor, musical opera, playground, food stall and other entertaining devices. The final and fourth slot would be reserve for foreign tourists in cottage service in an ethical style. This would eventually give a look of mini town in its independence existence that would house dispensary, small company offices and many other eco friendly manufacturing units. A life estate is an interest in land the duration of which is restricted to the life or lives of a particular person or persons holding it, or an estate in fee, an interest in property that is unconditional and represents the broadest ownership interest recognized by law. We shall provide multiple flexible financial schemes that would suit the budget of every planner and proposed establishment under our pilot project. In order to be categorized as a freehold, an estate must possess the characteristics of (1) mobility—in the sense that the property must be either land, or some interest derived from or affixed to land—and (2) indeterminate duration. Determinable freeholds are life estates created by language that provides that the estate is to terminate automatically upon the occurrence of a specified event. The engineering draft of the New Retail Business Centre is already under consideration that involves a remarkable risk for the bye pass road is far away from the centre. So the project covers construction of another link road of 2 km that might incur an additional cost. However the £500m New Retail Centre will create a superb shopping and leisure environment in the heart of the city with a mixture of uses. 860,000ft2 of retail space will be created. In addition, up to 200 residential apartments, a health club and leisure facilities will be provided by this landmark scheme besides a new curved street. The intended start on site in mid 2007 will include the relocation of the existing zoo and the stone crush mill. Work will initially begin off-site. So-called "enabling works" (that is, providing the gas, water, electrical and telephone infrastructure) began in March 2007 on the roads surrounding the new sites of all four slots. The second risk factor involves the insurance inadequacy. Insurance companies feel the project would not attract the immediate attention of the business investors for most of the business units are proposed to be completely pollution free. Therefore they demand high premium. The economics law- law of diminishing return fears the investor in this matter. But a property management company is tasked with the responsibility of managing the multiple aspects which come along with the ownership of real estate. This is much akin to the role of management in any business. One important role is that of acting as liaison between the local authority and the leasee. Duties of property management companies include accepting rent, responding to and addressing maintenance issues, advertising vacancies for landlords, and doing credit and background checks on tenants. In exchange for the service they provide, property management companies charge landlords a percentage of the gross rent collected each month (typically 3-10%), in addition to lease commissions. If disclosed in the management agreement repair costs may be marked by some property managers. Some property management companies also manage home owner associations. In addition to managing income and expense related activity, our property managers may also manage construction, development, repair and maintenance on a property. The direction / choreography of repair/maintenance is quite a large part of a property manager's function. Property manager relations with Tenants give a face to the our firm and provide them the necessary buffer servicing their desire to profit and distance themselves from their tenant constituency. There are many facets to this profession, including participating in and/or initiating litigation with tenants, contractors and insurance agencies. Litigation alone is at times considered an entirely separate function, set aside for trained attorneys. In the other hand our company will be responsible for this in their job description, there may or may not be an attorney working under a property manager. Special attention is given to Landlord/Tenant law and most commonly evictions, non-payment, harassment, reduction of pre-arranged services, and public nuisance are legal subjects that gain the most amount of attention from property managers. Therefore, it is a necessity that a property manager be current with new laws and practices in their given localities, cities and states. National and local property management associations serve as valuable resources which provide assistance in keeping up on current trends in this proposed business of Retail and Leisure Centre in liaisons of the local authority. Property management, like facility management, is increasingly facilitated by computer-aided facility management software. Hence we are no step behind in acquiring the latest technology and legal advantage to facilitate this project. Sources 1. Rondanini, Nunzia “Architecture and Social Change” Heresies II, Vol. 3, No. 3, New York, Neresies Collective Inc., 1981, p. 4 2. Cyril M. Harris, Noise Control in Buildings: A Practical Guide for Architects and Engineers (1994) 3. Wikipedia: the free encyclopedia 4. Butliboi Modern Book Keeping and Accountancy Read More