TRICASE DEVELOPMENT GROUP
RIVERFRONT CONDOMINIUM TOWER IMPLEMENTATION PLAN AND FEASIBILITY STUDY INVESTOR REPORT LONDON, ONTARIO PREPARED BY: ALEXANDER HRYNKIEWICZ ARHRYNKI 20330185 WEDNESDAY, DECEMBER 5, 2012
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS
TABLE OF CONTENTS PROJECT OVERVIEW
002
VISION
006
ILLUSTRATIONS
007
SWOT ILLUSTRATION
009
PROJECT TIMELINE
011
INVESTMENT ANALYSIS
013
SENSITIVITY ANALYSIS
015
CONCLUSION
017
WORKS CITED APPENDIX
001
TRICASE DEVELOPMENT GROUP
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS
PROJECT OVERVIEW The site is located at 100 Queens Avenue in London, Ontario. This address resides in the heart of the downtown core of the city and is in proximity of other condominium and highrise developments. The parcel is situated adjacent to dense development, naturalized green space and a couple of sing detached units located at the north-west corner. The built-form of the surrounding area is heavily supportive of the intensification of the parcel as the densities of the downtown core represent appropriate levels of compatibility. The site is within close proximity of a number of condominium developments which represent a much higher density and height than the proposed development. The proposed site is in the core of the downtown area and is in a heavily promoted area for continued development and intensification. City council, planning staff and area residents have all raised the importance of more residents in the downtown and the revitalization of the area. The policies and incentives instituted by the planning department and the original zoning of the site reflect these political and physical conditions. An increasingly growing and aging population will ensure demand for the development in a high amenity and accessibility region where future transit options are being contemplated. The site offers an extremely suitable location for the development.
LOCATION 100 QUEEN’S AVENUE LONDON, ONTARIO SIZE 1.73 ACRES ACQUISITION VALUE $ 3, 000, 000 ZONING DOWNTOWN AREA - 2
TRICASE DEVELOPMENT GROUP
CURRENT USE SURFACE PARKING SERVICED AT LOT LINE HEIGHT AND DENSITY H - 58 STOREYS D - 410 UNITS/HECTARE
SITE SPECIFICATIONS
002
The current designation of the land is DA-2 within the City of London interactive zoning map. The corresponding classification, under the City of London By-Law, designates the site as Downtown Area – 2 in which some relevant allowable land uses include retail stores, apartment buildings, apartment hotel, dwelling units, restaurants, outdoor patios and place of entertainment. This shortened list is part of a wide array of permitted uses within the zone that offer a high level of flexibility and mix of use possibilities for the site. The main point of the DA-2 zoning by-law is to offer sites on the periphery of the downtown area to permit residential uses as well as retail. Furthermore, the City of London interactive zoning map also designates the area under the classifications of D-410 and H-58. The D-410 classification illustrates that the site is permitted a maximum net residential density of 410 units per hectare. The H-58 classification illustrates that any development on the site will be restricted to a maximum height of 58 meters. Based on these designations the proposed development of this site is well within the constraints of the permitted use, density and height requirements of the municipality and therefore will maintain the same zoning designation as currently present of DA-2.
003
TRICASE DEVELOPMENT GROUP
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS PRECEDENTS IN POLICY AND STUDY The recently completed Transit Master Plan (2010), compiled by AECON, emphasized the importance of directing growth and development into strategic locations including downtown, major corridors and designated nodes to support future transit expansions in the form of Bus Rapid Transit or Light Rail Transit systems (AECON, 2010). The report outlined a historic trend of 23% of growth allocated to intensification, half of policies adopted for the greater golden horseshoe, and recommended drastic increases in downtown intensification to support transit goals and ridership. This assertion is further supported by the benefit of a greater vitality of the downtown as a result of increased intensification. Furthermore in 1990 the City of London implemented a policy encouraging downtown residential development by exempting downtown development, within a certain boundary, from normally applied development charges. This policy was reviewed in a Board of Control Report in 2008 and was extended for the time being. The proposed development site falls within the downtown core are which is exempted of development charges (London, 2009). These policies were also ratified in the City of London Development Charges Background Study of 2009. Furthermore, the City of London, within the Land Need Study of the Official Plan, illustrates the allocation of medium and high density zoning regulations within built up areas which have proven attractive to developers as a result of significant intensification within the city in recent times. Under Section 4.1.2 the study exemplifies intensification as a fairly significant contributor to residential development. Under Section 3.3.1 the assumed allocation of intensification projects is 25% of medium density and 75% of high density within intensification areas. These policies also reference ‘smart growth’ to justify a higher degree of intensification within the urban area. Within the City of London Official Plan Section 2.12.2 and 2.12.3 outline the goal of a downtown revitalization through the promotion of intensified residential development within downtown that encompass a high standard of design. Furthermore the downtown Master Plan Background Study states, “Historically, the City has generally taken the approach that the Downtown should accommodate the largest buildings in the City in the form of office towers, hotels, apartments and other mixed use buildings, and that densities and heights should be flexible to reduce the need for approvals and make it as easy as possible to develop” (London, 2010). The plan also outlines that in 2010 the only remaining residential development to be completed in the downtown included phase two of The Renaissance building which would accommodate 300 residential units.
TRICASE DEVELOPMENT GROUP
004
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS POLITICAL ATMOSPHERE With regard to citizens, there is currently no Downtown Residents Group which speaks on issues relating specifically to the Downtown. However, the Downtown Master Plan outlines a list of issues raised through public consultation which include a lack of residents living downtown, the need of student housing, improved incentives to accelerate residential growth and the under utilization of vacant space. Furthermore, within regard to surface parking specifically, the Master Plan outlines issues related to the best methods of encouraging development on existing surface parking lots. This site is located within Ward 13 of the City of London and is overseen by councilor Judy Bryant. The profile located on the councilor’s website indicates her dedication to economic growth and the revitalization of the downtown core and the strengthening of its communities. She is also the councilor who championed the Downtown Master Plan from which many supporting policies for the proposed development have already been outlined. As a supporter of smart growth and a better and smarter transit network Councilor Bryant should be supportive of the type of recommended project. Furthermore, recent actions by city council have shown an important commitment to development within significant downtown areas. London City Council, with the support of the municipal planning department and mayor, recently approved, in an 11-1 vote, the demolition of a downtown building which possesses significant heritage features in favor of ensuring the intensified development of the downtown. Mayor Joe Fontana is a heavy supporter of the City of London Downtown Vision Plan which outlines an intensified future of the downtown revitalization. Importantly, this Vision Report functions as the, “Vision for Downtown London [and provides] a long-term direction for the Thames River and the future of our downtown. It is a culmination of concepts that arose from the Downtown Summit and combines the ideas of the Downtown Master Plan, the Transportation Master Plan, City Council meetings, the Thames Valley Corridor Study, and other public consultation” (London, 2011). This plan illustrates multiple renderings of an approximately 10 storey development located on the same site which is the subject of this proposal as an important destination for future development. The necessity and support of intensification within the downtown is clearly present and evidently represents a proper political and policy environment for this type of proposal.
005
TRICASE DEVELOPMENT GROUP
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS
VISION The project will consist of single 8 storey building in the heart of downtown London a block away from the John Labbatt Centre and Covent Garden Market. The development will overlook the fork of the Thames River, Harris Park and the river promenade. Within close proximity to daily amenities, recreation facilities, entertainment, retail and restaurants, the proposal is an ideal location in an increasingly revitalized core. Within the northern downtown area resides the University of Western Ontario and with it the students, professors and intellectuals which compose its research and functions. Compounded with an aging population and an influx of new residents to the downtown core there is an increasing need for accommodations for the intellectual and creative classes as well as the aging population in proximity of the cultural, intellectual and lifestyle nodes of the city. The proposals proximity to all of these amenities in a continually sprawling city will attract a large amount of these types of residents. The City of London Downtown Master Plan outlines that from 2001-2006, based on census Canada data, the cohorts of 20-44 and 65+ accounted for a combined 45% of population growth within the downtown core. These metrics ensure that the development will be in demand as the population not only grows but ages. This will also be enhanced as more young singles, couples and creative minded individuals move to a revitalized downtown core. The buyers will be sourced from the regional market area as those moving from suburbs to higher amenity spaces will also be targeted. The development will be suited for senior residents, move up buyers, and young couples and singles. NUMBER OF UNITS 350 TYPE OF UNITS 1 AND 2 BEDROOMS TENURE FREEHOLD GFA 450, 000 SQ FT AVE. UNIT AREA 1, 000 SQ FT
TRICASE DEVELOPMENT GROUP
ACREAGE OF PROJECT 185 UNITS/ACRE TYPE OF CONDO MID-RISE BUILDING HEIGHT 8 FLOORS PHASING 1 PHASE RETAIL MIX GROUND FLOOR RETAIL
PROJECT SPECIFICATIONS
006
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS
ILLUSTRATION The following images are renders created by the City of London as possible uses for the lot within their Vision Report. These renders represent theoretical illustrations of the context and possible form of the proposal. All visualizations were created with the imput of staff, council and downtown residents.
007
TRICASE DEVELOPMENT GROUP
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS
ILLUSTRATION The following images are renders created by the City of London as possible uses for the lot within their Vision Report. These renders represent theoretical illustrations of the context and possible form of the proposal. All visualizations were created with the imput of staff, council and downtown residents.
TRICASE DEVELOPMENT GROUP
008
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS
SWOT ILLUSTRATION OPPORTUNITIES
THREATS
1. PROXIMITY TO AMENITIES 2. PROXIMITY TO UNIVERSITY 3. POLICY 4. CURRENT BUILT FORM 5. POLITICAL ATMOSPHERE 6. APPROVAL CONTEXT 7. DOWNTOWN REPUTATION
8. CONSTRUCTION COSTS 9. LOCATION 10. SINGLE DETACHED HOUSES 1 1 . TIMELINE 12. UNDERGROUND PARKING 13. CURRENT USE
S T
O W
009
TRICASE DEVELOPMENT GROUP
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS
SWOT ANALYSIS The illustration shows an array of opportunities and constraints which are plotted based on their relative magnitude. These points are then positioned based on whether each point is a strength of the site or a weakness. The opportunities of proximity to amenities and the university both represent strengths with high opportunity with relation to possible residents. This is also true of the policy framework which allows for much higher densities and the political atmosphere which is highly inclined to downtown revitalization. This is characterized by the lack of development charges in the downtown area to promote residential development. These frameworks offer great opportunity to increase revenues. On the opposite end of the spectrum the downtown’s reputation offers a weakness which has the possibility of being an opportunity. The downtown, on its way to revitalization, is deteriorated to a sense, however the intensive revitalization efforts and continually growing number of dense residential developments offers the opportunity of riding the wave of the revitalization. The threats of the site include the current parking use, which although a strength of offsetting holding costs could cause delays and increase demolition costs. Similarly, the location offers the strength of proximity however does threaten to off put some potential residents such as families. Threats such as construction costs, the underground parking and the timeline, without meeting projected targets could severely increase costs and threaten to significantly reduce revenues. Through this analysis, even though there are clear threats to the proposals, like any development, the strengths and opportunities of the proposal heavily outweigh these threats and show a favor for the success of the development.
TRICASE DEVELOPMENT GROUP
010
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS
TIMELINE PERMUTATIONS SC 5
SC 4
SC 3
SC 2
SC 1
2013
2014
2015
2016
2017
2018
011
TRICASE DEVELOPMENT GROUP
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS
TIMELINE ANALYSIS Based on the zoning and built form of the surrounding physical context there is a strong possibility for the timeline to be completed in an uninterrupted manner. Scenario 1 outlines a best case scenario in which each category is outlined in a timely and realistic manner based on the circumstances. Scenario 2 outlines the consideration of a lack of residents, in a global economic turndown who would wish to pre-purchase property. As a result this could cause a delay of two months in order to continue finding buyers to reach a pre-construction purchase of 70% to acquire financing. Scenario 3 outlines a delay in the approval process with the slim possibility of the two single detached buildings, located at the corner of a house, offering opposition to the development. However, based on the fact only one of these buildings is used as a residential use the possibility of a long delay or OMB trial is highly unlikely. Scenario 4 illustrates a construction delay caused by a shortage of workers or strike. This is the longest delay, amounting to 8 months, which accounts for any possibility of construction issues. Finally scenario 5 is an inclusive amalgamation of all other options to represent a worst case scenario if there were delays in each category as well as a lengthier underground parking construction. The scenarios outlined have a range of completion between 4 years and 2 months to 5 years and 6 months. Although the minimum timeline is achievable there will always be unforeseen problems and setbacks. As a result a benchmark time frame of 5 years should be considered.
LEGEND SC 1 BEST CASE SCENARIO SC 2 MARKETING DELAY SC 3 APPROVAL DELAY SC 4 CONSTRUCTION DELAY SC 5 WORST CASE SCENARIO
ACQUISITION
2013
JANUARY FEBRUARY MARCH
APPROVALS
APRIL
MARKETING/PERMITS
MAY JUNE JULY
DEMOLITION PARKING CONSTRUCTION CONSTRUCTION
AUGUST SEPTEMBER OCTOBER
CLOSING/REGISTRATION
NOVEMBER DECEMBER
DELAY
TRICASE DEVELOPMENT GROUP
2014
JANUARY
012
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS
INVESTMENT ANALYSIS Site Area GFA - As of Right GFA- Projected Res Saleable Retail Saleable Office saleable Res Units Parking Revenues Units Sales Retail Sales Upgrades Parking HST Total Revenue Costs Approval Consultants Municipal Charges Bldg Consultants Marketing fees Sales Commissions Closing Fees Management Fees Subtotal Softs Site Services and Demolition Hard Construction Subtotal Construction Holding Costs Finance Costs Subtotal Finance Land Total Project Costs Net Profit Net Profit - % Equity
Land Cash Pre-Finance Cash
Total Cash on Cash - %
SF SF SF SF SF SF
75,358 430,000 365,500 21,527 350 245
Input $ $ $ $
400.00 400 2,500 100 9.38%
$ $ $ $ $ $
1,000 10,679.46 20,000 10,000 4% 10,000 10,000
per unit per unit per unit per unit net sales per unit per unit
2,000 170 per SF
$ 2 $
saleable $ saleable $ unit $ per space $ saleable -$ $
years 25,000 per unit
350,000.00 $ 3,737,810 $ 7,000,000 $ 3,500,000 $ 5,848,000 $ 3,500,000 $ 3,500,000 $ 27,435,810 $ 2,000 $ 73,100,000 $ 73,102,000 $ $ 8,750,000 $ 8,750,000 $ 3,080,000 $ 112,367,810 $
$
29,626,632 $ 962%
$ $ $
Acres FSI FSI Net to Gross
1044 70%
Net Avg SF Of Unit Count
Total Per SF 146,200,000 340 8,610,800 875,000 $ 2 24,500 13,715,858 -$ 32 141,994,442 $ 330
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
over land purchase
1.73 0.0 5.7 85%
3,080,000 7,474,000 10,554,000
1 9 16 8 14 8 8 64 0 170 170 20 20 7 261
$
Per Unit 417,714
$
2,500
-$ $
39,188 405,698
$ $ $ $ $ $ $ $ $ $ $
1,000 10,679 20,000 10,000 16,709 10,000 10,000 78,388 6 208,857 208,863 0 25,000 25,000 8,800 321,051
$ $ $ $
69 $
84,648
Indicates Input Cell
Land Costs Purchase Price LTT Legals Commissions Total Municipal Costs per Unit DC's Park Cash Section 37 Density App Fees Permits Total
$ $ $ $ $
3,000,000 60,000 20,000 3,080,000
$ $ $ $ $ $ $
10,000 146 534 10,679
$ $
114,000.00 114,000
Annual Holding Costs Revenue Taxes Operating Net
$
Pre-Finance Cash Approval Costs Marketing Costs Commissions Design Costs Total
$ $ $ $ $
350,000 3,500,000 2,924,000 700,000 7,474,000
$ 70% $ $ $ $ $
3,080,000 15,351,000 5,618,391 68,544,364 7,474,000 100,067,755
Sources of Funding Equity - Land Deposits (15%) firm Deferred Costs Construction Loan Equity - Cash Total
2%
-
50% 10%
3% 14% 5% 61% 7% 89%
281%
The above analysis represents an optimized scenario in which numbers are derived in an expected best case scenario. Based on comparable market alternatives and the proximity to amenities the unit sales have been determined between $350 to 400$ per saleable square foot. As a result the analysis utilizes the appropriate heightened figure. Ground floor retail services are approximated at the same value as residential footage. A maximum upgrade fee of 2,500 per unit is chosen because of the nature of the development. HST costs have been determined through the Price Water House Cooper schedule. With minimal approval irregularities a cost of consultants has been set at $1,000. Construction costs have a range of $160 to $200 per unit as shown in the 2012 Atlus Group Construction Guide. Development charges, based on By-Law CP-9 do not apply to residential development within the Downtown Area therefore no charge has been input. A general park cash value has been used while the proposal falls within both density and height targets and therefore requires no values.
013
TRICASE DEVELOPMENT GROUP
Application fees, based on the city’s schedules are valued at a maximum of $4000 for site plan approval and a $3750 base fee plus a $125 unit base fee. Building permit fees, based on those schedules, are valued at $5.80 per square meter. of unit size. The Holding costs are determined by through a 3.8% property tax. The assumption is then made that the revenue generated by the surface parking facility would offset these annual taxes for an annual holding cost of $0. The cash flow structure below takes the average timeline discerned previously to output a final Interest Rate of Return of 16% and a Net Profit of $26, 626, 632. As stated before these numbers represent an optimal investment analysis in which the project offer the greatest rate of return on realistic and expected values. Based on the results of this scenario the project would qualify as an investment worth undertaking. Cash Flow Analysis
Total
2011
2012
2013
2014
2015
Revenue Approval Consultants Municipal Charges Building Consultants Marketing Fees Sales Commissions Closing Fees Management Fees Subtotal Softs
$ 141,994,442 $ $ 350,000 $ $ 3,737,810 $ $ 7,000,000 $ $ 3,500,000 $ $ 5,848,000 $ $ 3,500,000 $ $ 3,500,000 $ $ 27,435,810 $
-
$ $ $ $ $ $ $ $ $
-
$ $ $ $ 350,000 $ $ $ 1,495,124 $ 2,242,686 $ $ $ $ 7,000,000 $ $ 3,500,000 $ $ 5,848,000 $ $ $ $ $ $ $ 3,500,000 $ $ 7,693,124 $ 9,242,686 $ 7,000,000
Site Services & Demolition Hard Construction Subtotal Construction
$ 2,000 $ $ 73,100,000 $ $ 73,102,000 $
-
$ $ $
-
$ $ $
Holding Costs Finance Costs Subtotal Finance Total Costs Gross Profit Before Land Land Net Profit
$ $ $ 8,750,000 $ $ 8,750,000 $ $ 109,287,810 $ $ 32,706,632 $ $ 3,080,000 $ $ 29,626,632 $
-
$ $ $ $ $ $ $
-
NPV IRR
TRICASE DEVELOPMENT GROUP
-
$ $ $ $ 7,693,124 -$ 7,693,124 $ 3,080,000 -$ 10,773,124
$ $ $
-
$ $ $
2016 $ $ $ $ $ $ $ $ $
141,994,442 3,500,000 3,500,000
2,000 $ $ $ 58,480,000 $ 2,000 $ 58,480,000 $
14,620,000 14,620,000
$ $ $ $ 8,750,000 $ $ 8,750,000 $ 9,242,686 $ 15,752,000 -$ 9,242,686 -$ 15,752,000 $ $ -$ 9,242,686 -$ 15,752,000
$ $ $ $ $ $ $ $ $
2017 -
$ $ $ $ 58,480,000 -$ 58,480,000 $ -$ 58,480,000
$ $ $ $ $ $ $
18,120,000 123,874,442 123,874,442
$3,112,055.64 16%
014
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS
SENSITIVITY ANALYSIS Beyond the optimal investment scenario are a range of possible influences. The below sensitivity analysis illustrates three scenarios including the Best Case Scenario (Unit Sale: $400 and Building Cost: $170), Middle Case Scenario (Unit Sale: $375 and Building Cost: $185) and the Worst Case Scenario (Unit Sale: $350 and Building Cost: $200). The analysis is further supported by the contingency of land value. If there is a spike in the cost of land because of the revitalization efforts within the downtown area or a higher asking price because of a short acquisition period. The analysis shows the proposal is heavily sensitive to change with the worse case scenario represented by a miniscule IRR which becomes negative if the land value increases. Overall the analysis shows that the contingency of the land value does represent a significant factor however does not generally impact the scenarios in a manner which would sway the investment decision. It is important to understand that the construction costs and unit sale values heavily influence revenues from the proposal. A dampened market in which units would not sell at an expected value would heavily limit the investment performance of the development and reduce revenues below a 12% IRR. 18%
5,000,000 100,000 20,000 5,120,000
$35,000,000.00
16%
2%
$30,000,000.00
14% $25,000,000.00 12%
IRR / Net Profit
10,000 146 534 10,679
$20,000,000.00
10%
3, 000, 000 Land Value 8%
$15,000,000.00
$ 5,000,000 Land Value $3, 000, 000 Land Value
6%
$10,000,000.00
$ 5, 000, 000 Land Value
4%
114,000.00 114,000
$5,000,000.00 2%
$0.00
0%
350,000 3,500,000 2,741,250 700,000 7,291,250
5,120,000 14,391,563 6,024,616 73,500,309
015
BCS
WCS
-2%
Scenario
50% 10%
MCS -$5,000,000.00
3,000,000 4% 12% 5% 61%
BCS WCS MCS
16% 1% 9%
$29,626,632.00 $896,827 $15,261,726
TRICASE 5,000,000
15%
$27,586,632
DEVELOPMENT GROUP
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS
TIMELINE SENSITIVITY The development may also fall victim to the possible delays outlined in earlier sections. These delays could consist of strikes, a shortage of workers, downtown citizen complaints, marketing setbacks in a slow market and an increased time frame of the construction of underground parking facilities. As a result it is worthwhile to understand the investment profile of the longest timeline. Using the optimal solution with regard to costs the increased timeline, ending in 2018, reduces from a 15% IRR to a 9% IRR as illustrated in the revised chashflow chart below: Cash Flow Analysis
Total
Revenue Approval Consultants Municipal Charges Building Consultants Marketing Fees Sales Commissions Closing Fees Management Fees Subtotal Softs
$ $ $ $ $ $ $ $ $
Site Services & Demolition Hard Construction Subtotal Construction
$ $ $
Holding Costs Finance Costs Subtotal Finance Total Costs Gross Profit Before Land Land Net Profit
$ $ $ $ $ $ $
NPV IRR
2011 141,994,442 350,000 3,737,810 7,000,000 3,500,000 5,848,000 3,500,000 3,500,000 27,435,810
2012
2013
$ $ $ $ $ $ $ $ $
-
$ $ $ $ $ $ $ $ $
-
$ $ $ $ $ $ $ $ $
2,000 $ 73,100,000 $ 73,102,000 $
-
$ $ $
-
$ $ $
-
$ $ $ $ $ $ $
-
8,750,000 8,750,000 109,287,810 32,706,632 5,120,000 27,586,632
$ $ $ $ $ $ $
2014
350,000 1,495,124 5,848,000 7,693,124 -
$ $ $ $ 7,693,124 -$ 7,693,124 $ 5,120,000 -$ 12,813,124
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ -$ $ -$
2015
2,242,686 3,500,000 3,500,000 9,242,686 9,242,686 9,242,686 9,242,686
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ -$ $ -$
7,000,000 7,000,000
2016 $ $ $ $ $ $ $ $ $
2,000 $ $ 2,000 $ 8,750,000 8,750,000 15,752,000 15,752,000 15,752,000
$ $ $ $ -$ $ -$
2017 -
$ $ $ $ $ $ $ $ $
2018 -
$ $ $ $ $ $ $ $ $
$ 58,480,000 $ 58,480,000 $
$ 14,620,000 $ 14,620,000 $
58,480,000 58,480,000 58,480,000
14,620,000 14,620,000 14,620,000
$ $ $ $ -$ $ -$
$ $ $ $ $ $ $
2019
141,994,442 3,500,000 3,500,000 3,500,000 138,494,442 138,494,442
2020
2021
$ $ $ $ $ $ $ $ $
-
$ $ $ $ $ $ $ $ $
-
$ $ $ $ $ $ $ $ $
-
$ $ $
-
$ $ $
-
$ $ $
-
$ $ $ $ $ $ $
-
$ $ $ $ $ $ $
-
$ $ $ $ $ $ $
-
-$3,679,056.17 9%
Based on the result of this sensitivity analysis, using optimal values, that the proposal is highly sensitive to any fluctuations in timeline and would make any scenario un-viable if incurred. Net profit has also been reduced to $ 27, 586, 632. The overall assessment of the sensitivity analysis illustrates that the major factors influencing the success of the proposal include the timeline, cost of construction and revenue per square foot. The land value and number of units within the development proved to have lower influences in the overall profit of the development. With constant municipal charges and taxes as well as a very low possibility of any approval related charges the prior factors will be the major deciding investment factors.
TRICASE DEVELOPMENT GROUP
016
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS
CONCLUSION The proposal for a dense residential development in the core of the London downtown area began with a high degree of promise. The residential zoning and applicable policy were all extremely supportive of the proposal and offered a high degree of leniency to the proposal. This was further supported by a political atmosphere in which the revitalization of the downtown core is of the upmost importance to city council, city staff and the residents of the downtown area. This support was so strong that the elimination of development charges, the lack of paring restrictions and the extremely lenient density and height restrictions illustrated an optimal location for the proposal and possible revenues. This was further supported through the optimal timeline and valuation which produced a relatively profitable 16% IRR. However based on the combined sensitivity analyses of both the timeline and of the cost structure the proposal has proven to be extremely susceptible to minor fluctuations in both aspects. The cost of construction has proven to be a major factor in the revenue stream process for the proposal. This has also meant that if the value of each unit sale is not sustained at a realistically optimal level there is no way to compensate for the construction costs and revenues of the proposal quickly fall. This is further compounded by the sensitivity to time frame fluctuations which cause a severe drop in IRR because of the increased financing time. These fluctuations, in a down turned economic environment, are far more realistic than usual and therefore represent a high risk of occurrence. As a result of this assessment, even though the optimal solution is relative attractive, the overall sensitivity of the proposal forces the decision of investment in the proposal to be negative. The proposal is too high of a risk for a low return on investment and therefore should not be initiated. Overall the proposal showed that even though a municipality offers heavy incentives for a development within key areas, those incentives do not ensure profitability. Realistically, those incentives are present because of the hardships faced by developers and the lack of development occurring in the downtown. Combined with an under utilized downtown and economic downturn the incentives, no matter how alluring, do not offset the drawbacks of a location in which construction costs are high and relative unit sales are low.
017
TRICASE DEVELOPMENT GROUP
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS
The scale of the project effectively became a limiting factor as the unit sales could not effectively offset construction costs. It is a realistic assumption that a high-rise condominium of 25-30 storeys would have had sufficient unit capacity to offset construction costs and offer a higher return. This is consistent with current development in London which has trended to larger and taller condominiums which resemble point towers. Recent developments in the downtown have mostly included dual phased residential towers built on podiums above ground level commercial uses. Furthermore, it would be more prudent to find a more established downtown area which is further along in revitalization or completely revitalized. Although the benefits of this site and support for development would be reduced the stability of unit values would allow more resiliency to fluctuations in time and construction costs which would allow a more stable investment decision.
TRICASE DEVELOPMENT GROUP
018
Works Cited Atlus Group. (2012). Construction Cost Guide 2012. Retrieved on Monday, November 26, 2012 from https://learn.uwaterloo.ca/d2l/lms/content/viewer/main_frame.d2l?ou=54207&tId=498628 City of London. (2012a). Building & Planning Information System. Retrieved on Monday, November 5, 2012 from http://www.london.ca/d.aspx?s=/Building_ and_Planning_Information/permitappservice.htm City of London. (2012b). City of Opportunity: A Vision for Downtown London. Retrieved on Monday, November 5, 2012 from http://www.london.ca/Planning_ and_Development/Land_Use_Planning/Urban_Design/PDFs/AVisionForDownt ownLondon_04JAN2012.pdf City of London. (2012c). Interactive City Map. Retrieved on Monday, November 5, 2012 from http://www.london.ca/d.aspx?s=/Planning_and_Development/ zoningmap.htm City of London. (2012d). City of London 2012 Tax Rates. Retrieved on Monday, November 26, 2012 from http://www.london.ca/Taxes/Commercial_and_Industrial/PDFs/2012_taxrates.pdf City of London. (2012e). Parkland Conveyance and levy By-Law. Retrieved on Monday, November 26, 2012 from http://www.london.ca/By-laws/PDFs/parkland.pdf City of London. (2012f). Building Division Fees and Forms. Retrieved on Monday, November 26, 2012 from http://www.london.ca/d.aspx?s=/Construction_and_Building/Building_Div_Forms_Fees.htm City of London. (2010a). Planning the Future of Transportation in London – What’s happening Today?. Retrieved on November 5, 2012 from http://www.london.ca/ transportation_planning/pdfs/interimreportphase1.pdf City of London. (2010b). Downtown Master Plan Background Study. Retrieved on Monday, November 5, 2012 from http://www.london.ca/d.aspx?s=/Planning/ downtown_town_plan_backgroundstudy.htm City of London. (2010c). Instructions for Draft Plan of Condominium Application. Retrieved on Monday, November 26, 2012 from http://www.london.ca/Licences_and_Permits/2010_ CondominiumApplication.pdf City of London. (2009a). Development Charges Background Study. Retrieved on Monday, November 5, 2012 from http://www.london.ca/Planning_and_Development/Development_Approvals/PDFs/ dc-bgstudy-final.pdf City of London. (2009b). Development Charges By-Law. Retrieved on Monday, November 26, 2012 from http://www.london.ca/By-laws/PDFs/devcharges.pdf
City of London. (2008a). Zoning By-law No. Z.-1 (Portion) Retrieved on Monday, November 5, 2012 from http://www.london.ca/by-laws/chaptr04.htm#4.19 City of London. (2008b). Building By-Law: B-5. Retrieved on Monday, November 26, 2012 from http://www.london.ca/By-laws/PDFs/building.pdf City of London. (2008c). Parkland Dedication Requirements, Practices and Procedures. Retrieved on Monday, November 26, 2012 from http://council.london.ca/meetings/Archives/Reports%20and%20 Minutes/Planning%20Committee%20Reports/Planning%20Committee%20Reports%20 2009/2009-01-26%20Report/Item%2016.pdf City of London. (2007). 2006 Official Plan Review: Land Needs Background Study. Retrieved on Monday, November 5, 2012 from http://www.london.ca/Official_Plan/PDFs/ FINALLandNeedsBackground11May07.pdf Fontana, Joe. (2012). Mayor Joe Fontana: Building London’s Tomorrow – Today. Retrieved on Monday, November 5, 2012 from http://mayorfontana.ca/?page_id=2 Meyer, Sean. (2012). Council Approves 199 Queens Ave. Demolition, but Building Could Still be Saved. Retrieved on Monday, November 5, 2012 from http://www.londoncommunitynews.com/2012/11/ council-approves-199-queens-ave-demolition-but-building-could-still-be-saved/ Moore, Leith. (2012). Notes on Proforma Costs. PLAN 483. Wednesday, November 28, 2012. Price Waterhouse Cooper (2010). HST Schedule. Retrieved on Monday, November 26, 2012 from https://learn.uwaterloo.ca/d2l/lms/content/viewer/main_frame.d2l?ou=54207&tId=498628 The Canadian Real Estate Association. (2012). Property Sale Search. Retrieved on Monday, November 5, 2012 from http://www.realtor.ca/map.aspx?&vs=VELand&minp=0&maxp=0&area=London+ Ontario&trt=2#landSize:;pmin:0;pmax:0;rmin:0;rmax:0;waterfront:false;viewtypeid:;landUse:-1;fo rsale:true;forrent:false;orderBy:A;sortBy:1;LisStartDate:;mapZ:15;page:1;mapC:42.99218644733564, -81.24396085739137;curView:;curStyle:r;leftMin:false;rightMin:false;chkSchl:false;chkTran:false;chkP ol:false;chkMed:false;chkWrk:false;chkFire:false;chkAll:false
TRICASE DEVELOPMENT GROUP
INVESTOR REPORT IMPLEMENTATION STRATEGY AND FEASIBILITY ANALYSIS
APPENDIX : Optimal Solution Site Area GFA - As of Right GFA- Projected Res Saleable Retail Saleable Office saleable Res Units Parking Revenues Units Sales Retail Sales Upgrades Parking HST Total Revenue Costs Approval Consultants Municipal Charges Bldg Consultants Marketing fees Sales Commissions Closing Fees Management Fees Subtotal Softs Site Services and Demolition Hard Construction Subtotal Construction Holding Costs Finance Costs Subtotal Finance Land Total Project Costs Net Profit Net Profit - % Equity
SF SF SF SF SF SF
75,358 430,000 365,500 21,527 350 245
400.00 400 2,500 100 9.38%
$ $ $ $ $ $
1,000 10,679.46 20,000 10,000 4% 10,000 10,000
saleable $ saleable $ unit $ per space $ saleable -$ $
per unit per unit per unit per unit net sales per unit per unit
2,000 170 per SF
$ 2 $
years 25,000 per unit
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
350,000.00 $ 3,737,810 $ 7,000,000 $ 3,500,000 $ 5,848,000 $ 3,500,000 $ 3,500,000 $ 27,435,810 $ 2,000 $ 73,100,000 $ 73,102,000 $ $ 8,750,000 $ 8,750,000 $ 3,080,000 $ 112,367,810 $
$
29,626,632 $ 962%
over land purchase
Land Cash Pre-Finance Cash
$ $ $
Total
1044 70%
Net Avg SF Of Unit Count
1 9 16 8 14 8 8 64 0 170 170 20 20 7 261
Indicates Input Cell
$
Per Unit 417,714
$
2,500
-$ $
39,188 405,698
$ $ $ $ $ $ $ $ $ $ $
1,000 10,679 20,000 10,000 16,709 10,000 10,000 78,388 6 208,857 208,863 0 25,000 25,000 8,800 321,051
$ $ $ $
69 $
Land Costs Purchase Price LTT Legals Commissions Total Municipal Costs per Unit DC's Park Cash Section 37 Density App Fees Permits Total
84,648
$ $ $ $ $ $ $
10,000 146 534 10,679
$ $
114,000.00 114,000
Pre-Finance Cash Approval Costs Marketing Costs Commissions Design Costs Total
$ $ $ $ $
350,000 3,500,000 2,924,000 700,000 7,474,000
$ 70% $ $ $ $ $
3,080,000 15,351,000 5,618,391 68,544,364 7,474,000 100,067,755
2%
-
50% 10%
3% 14% 5% 61% 7% 89%
281%
Total
2011
2012
2013
2014
2015
$ 141,994,442 $ $ 350,000 $ $ 3,737,810 $ $ 7,000,000 $ $ 3,500,000 $ $ 5,848,000 $ $ 3,500,000 $ $ 3,500,000 $ $ 27,435,810 $
-
$ $ $ $ $ $ $ $ $
-
$ $ $ $ 350,000 $ $ $ 1,495,124 $ 2,242,686 $ $ $ $ 7,000,000 $ $ 3,500,000 $ $ 5,848,000 $ $ $ $ $ $ $ 3,500,000 $ $ 7,693,124 $ 9,242,686 $ 7,000,000
Site Services & Demolition Hard Construction Subtotal Construction
$ 2,000 $ $ 73,100,000 $ $ 73,102,000 $
-
$ $ $
-
$ $ $
Holding Costs Finance Costs Subtotal Finance Total Costs Gross Profit Before Land Land Net Profit
$ $ $ 8,750,000 $ $ 8,750,000 $ $ 109,287,810 $ $ 32,706,632 $ $ 3,080,000 $ $ 29,626,632 $
-
$ $ $ $ $ $ $
-
$ $ $ $ -$ $ -$
IRR
3,000,000 60,000 20,000 3,080,000
$
Revenue Approval Consultants Municipal Charges Building Consultants Marketing Fees Sales Commissions Closing Fees Management Fees Subtotal Softs
NPV
$ $ $ $ $
Annual Holding Costs Revenue Taxes Operating Net
Sources of Funding Equity - Land Deposits (15%) firm Deferred Costs Construction Loan Equity - Cash Total
3,080,000 7,474,000 10,554,000
Cash on Cash - %
Cash Flow Analysis
Acres FSI FSI Net to Gross
Total Per SF 146,200,000 340 8,610,800 875,000 $ 2 24,500 13,715,858 -$ 32 141,994,442 $ 330
Input $ $ $ $
1.73 0.0 5.7 85%
$3,112,055.64 16%
7,693,124 7,693,124 3,080,000 10,773,124
$ $ $
-
$ $ $
2016 $ $ $ $ $ $ $ $ $
141,994,442 3,500,000 3,500,000
2,000 $ $ $ 58,480,000 $ 2,000 $ 58,480,000 $
14,620,000 14,620,000
$ $ $ $ 8,750,000 $ $ 8,750,000 $ 9,242,686 $ 15,752,000 -$ 9,242,686 -$ 15,752,000 $ $ -$ 9,242,686 -$ 15,752,000
$ $ $ $ $ $ $ $ $
2017 -
$ $ $ $ 58,480,000 -$ 58,480,000 $ -$ 58,480,000
$ $ $ $ $ $ $
18,120,000 123,874,442 123,874,442