Liverpool Commercial Space Leasing Financial Strategy Report

This report analyzes the financial strategy for a commercial space leasing project in Liverpool, Australia. The project involves shop-top housing with commercial premises on the ground floor and residential apartments above. The report details the potential for leasing the commercial spaces, which range in size and cater to various businesses such as small offices, retail shops, and medical practices. It highlights the financial strategy, including the use of a construction loan and the sale of residential apartments to fund the project. The report includes details on apartment prices, leasing terms, and projected rental yields. It also addresses potential risks such as apartment oversupply and market gentrification. The financial analysis covers initial sell-off strategies, interest rates, and the impact of rental yields on NPV and IRR, providing a comprehensive overview of the project's financial viability and investment potential.

Commercial Section
The best way for making money has been found to be leading commercial spaces The key
issue is the underlying difficulty in finding a suitable target client. This is on account of the
diversity in the ground floor which caters to each leasable area of different sizes. Each
leasable space has an area which ranges from 28 square meters to 112 square metres. Out of
the 8 allocated spaces, 7 have area in excess of 50 square metres. It has been already
highlighted that Liverpool is an area where both commercial and residential sectors are
booming. Further, the two sectors tend to grow hand in hand. As no fit outs need to be
established on the first floor of the commercial building, hence a whole lot of possibilities
arise in terms of prospective lessee. The available space could serve the following purposes.
 Offices for small businesses
 Shops for retail businesses
 Food outlets or cafe
 Medical practice (GP’s)
 Other
Before this project development, a host of separate businesses from the above listed entities
were present such as accounting firm, food outlet along with barber shop. It is possible for the
same lease out to be applicable for each of the leasable spaces. Liverpool Council’s vision in
context of community’s commercial side also ought to be considered. This particular
document highlights the vision along with plans which would evolve the community during
the next decade.
The residential demand is on the rise as Liverpool City is one of the fastest growing local
region in Australia. This is also leading to higher demand for commercial and retail space
such as local businesses, cafes and medical facilities. It is possible that instead of retail
shops, the focus is primarily on the uses identified above as medical facilities are more
pivotal and hence classify as a key target with regards to lease occupancy. Small businesses
would also benefit from the available space as they would gain access to a ready-made
infrastructure and can have their main office here. This suits the needs of small businesses
that are quite adept at making the most of leasable spaces.
FINANCIAL STRATEGY,PROPOSAL ANALYSIS AND RISK
We have chosen ‘shop-top housing’ which would include commercial premises on the ground
floor with basement parking on two levels along with residential apartments on three storeys.
In terms of population, Liverpool is the second largest LGA (Local Government Area).Owing
to the significant industrial estate located within the LGA, it is both attractive and affordable
for families. As a result, going ahead Liverpool presents immense potential for investors. It is
noteworthy that rewards come with potential risks. These risks would include creation of an
apartment oversupply, not being able to meet the demands of the key target market along

with area gentrification thereby leading to loss of end users from the market. All these factors
would impact the overall profitability.
The financial strategy would involve the sale of residential apartments on the three storeys
once these are completed. The sale of apartments would be “off the plan” which would allow
the construction loan to be availed and lead to higher chances of project being profitable. In
relation to analysis of the project, the sell off would be included in the investment cycle’s
first year. The commercial premises on the ground floor would be leased out and thereby
liquidated once the 15 year investment cycle is finished. It is noteworthy that unless stated
otherwise it is reasonable to assume that all figures have been taken from real estate agencies.
Finance
To meet the construction cost, a construction loan would be availed. For the estimated cost of
$11,015,800, the client would make an upfront deposit of 10%. The interest rate charged
would be on 5.43% (variable) and would be charged on a monthly basis based upon the exact
schedule of drawdown that would be followed during the construction period. Once the
project is completed, the total loan would be paid as the sale would cover the loan and hence
in the first year itself, it is assumed that breakeven would be achieved. On account of this
short duration of loan, cost of interest has been included in the NPV analysis as a separate
tabular analysis would not of any incremental use.
Initial Sell-Off
It is expected that within the first year only the client would sell 45 units of one and three
bedroom apartments each besides 60 units of two bedroom apartments. The sales proceeds
from the above would be used to completely clear the outstanding debt so that no repayment
or interest obligation is outstanding on the construction loan. A short term profit to the tune
of $8,345,026 would be delivered to the client. Finally, the gross rental yield of 3.75% would
be lower than the discount rate of 6% which may be incremental for NPV but would have an
adverse impact on IRR (Internal Rate of Return). The incremental gains in NPV would be
lesser than the loss with regards to returns. As a result, it would be preferable that the
apartments are sold only once they are completed as the expected returns would be more
balanced.
Details about Apartment Prices
One bedroom apartment (Total units: 45) $573,000 each
Two bedroom apartment (Total units: 60) $554,000 each

Three bedroom apartment (Total units: 45) $680,000 each
TOTAL EXPECTED REALISATION $89,625,000
Leasing
The commercial units (Total units: 8) would be leased for the complete duration of 15 years.
This is different from the residential units which were sold outright. This difference in
strategy can be justified on account of the higher rental yield on commercial property in
comparison to residential property. In the first year, maintenance/servicing related costs are
projected to be $765,000. The growth in the commercial premises is projected to be 7.1%.
Further, the servicing costs and rental income are expected to increase as per inflation i.e.
1.05% per annum.