EPM5750 Project Investment Analysis: City Highrise Complex

This report presents a financial evaluation of the City Highrise project, involving the demolition of an existing building and the construction of a new complex. The evaluation incorporates income and cost approaches, analyzing development costs, cash expenditures, and risk assessments using scenario analysis to determine optimistic and pessimistic project outcomes. Key factors include the potential acquisition of the project by John Willey Pty Ltd at a 5% premium, the impact of changing financing structures, and a thorough risk assessment. The report forecasts revenue and costs, considering inflation rates of 4% and 6% at different project phases, and assesses the project's financial sustainability under various business and economic conditions. The analysis includes a letter of advice, an executive summary, and detailed discussions and recommendations based on the findings.

Running head: REAL ESTATE EVALAUTION
Real Estate Evaluation
Name of the Student:
Name of the University:
Author’s Note:

1REAL ESTATE EVALUATION
Serial Particulars Yes No
1 Cost Involved in the Development of the Project Yes -
2 Report for the City Highrise Project Yes -
3 Earnings/Cash Flows Schedule Yes -
4 Profit Analysis Yes -
5 Development Expenses Yes -
6 Financing Expenses Yes -
7 Increase in Outflow or Expenses of the project Yes -
8 Return Generated by the project Yes -
9 Revenue Forecasting for the John Wiley Pty Ltd Yes -
10 Acquisition Price for John Wiley Pty Ltd. Yes -
11 Financial Analysis for John Wiley Pty Ltd Yes -
12 Return Creation Yes -
13 Exit Route for City Highrise Yes -
14 Impact of Leverage Yes -
15 Risk Assessment Yes -
16 Sensitivity Analysis Yes -
Assignment Checklist

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Table of Contents
Letter of Advice...............................................................................................................................3
Executive Summary.........................................................................................................................5
Introduction......................................................................................................................................6
Assumptions....................................................................................................................................6
Methodology....................................................................................................................................7
Spreadsheet and Evaluation of the Factors Evaluated.....................................................................8
Discussion and Recommendations................................................................................................13
Risks and Sensitivity Analysis................................................................................................13
Risk Evaluation of City Highrise project..............................................................................13
Exit Route Evaluation.............................................................................................................15
Annual Cash Flow for John Wiley Pty Ltd...........................................................................16
Analysis of the Project under Scenario 2 for John Wiley Pty Ltd......................................18
Return from Project under Scenario 2..................................................................................19
Conclusion.....................................................................................................................................19
Reference.......................................................................................................................................20

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Letter of Advice
Melbourne, VIC 3000
Telephone [phone]
www.mckenzieandassociate.com.au
28th September 2018
Mr Con Gomes,
The Managing Director
City Highrise Complex Development Option.
Level 6, 510 King William Street,
Adelaide SA 5000
Dear Mr. Gomes,
Sir it is to bring under your notice that the Financial evaluation for the Project City high rise was
evaluated where the cost and the revenue analysis was done for the project. Total development
cost was even determined for the project which gave us the estimate for the total cost that will be
incurred in the project due course of time. The financial evaluation and analysis done was based

4REAL ESTATE EVALUATION
on assumptions and facts that the company may face at the time for the construction of the
project.
The different components and factors were evaluated on the base that the factors for
estimating the project revenue and expenses such as the construction expenses, development
expenses and the escalation and outgoing costs could have probable impacts on the project.
Present breakdowns and scenario project Investment Analysis was done on different
grounds and different scenarios where the project scenario could be determined under the
optimistic and pessimistic scenario. Scenario Analysis and the risk assessment and analysis
helped us gain an scenario under which the project could land up. The exit rout and the price for
selling the developed project to John Willey Pty Ltd Company and the developers profit arising
from the same were the key factors evaluated and included in the project.
Please feel free to get in touch with us in case of any concern or query.
Yours Sincerely
Financial Adviser
Real Estate Developer

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Executive Summary
The aim for the project is to evaluate a Real Estate project that is the City Highrise project. The
analysis and the evaluation of the project was done on the basis of the cost and the revenue
implied by the project. The City Highrise project has been divided into different scenarios where
the project commences with the demolition of the existing building and the construction and the
planning and the development of the new project. The approaches used for the valuation of the
project was the income and the cost approach for the City Highrise Project. The development
cost breakdown along with the cash expenditure involved for constructing the complex was
carefully analyzed. The risk assessment for the project was done by using the risk assessment
tools such as the scenario analysis, which gave us an optimistic and pessimistic scenario for
conducting and the final evaluation of the project.

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Introduction
The project evaluation for the City Highrise Project is the main evaluation done under the
project. The project evaluation and assessment was based on the fact that the project will be
distributed in three major parts where each factor and scenario has its role to play. The
demolition phase, construction, planning and designing along with the cost involved with the
same were the key reasons that were evaluated while assessing the project. The financial
evaluation was done and the forecasting of revenue and the costs associated was performed on
the project to get a financial sustainability for the project. The project revenue breakdown along
with the costs associated such as development, construction were forecasted with the inflation
forecast, which was assumed to be 4% and 6% at the different phase of the project (Kuhle and
Lin 2018).
The other part of the project was evaluated on the basis of the fact that the project will be
acquired by the John Willey Pty Ltd which will acquire the project at 5% premium from the
Developer. The assumptions and factors considered for the same were highlighted in the same.
The other part of the project deals with the changing financing structure and the impact of the
changing financial leverage on the company and the associated financing costs (Pengyan and
Chao 2016). The final part of the project deals with the risk assessment of the undertaken project.
The key financial evaluation and assessment of the project with the above scenarios and
by distributing the projects into different phase helped us gain what the project forecast could be
depending on certain business, economic and other factors that may influence the project.

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Assumptions
The key assumptions used in the project was the inclusion of the construction cost, which is of
around 300 million that will be incurred in cash. The relevant financing costs and the interest
expense for the same will be applicable. The approach used for valuation of the project was the
cost approach and the approach used for assessing the income of the project was the use of the
income project (Wu and Kou 2016). The inflation forecast was broken down into two parts
where the inflation for the first year will be 4% p.a. for the total amount of the cost or the amount
spend that is the 40% of the total cost. The rest 60% of the total development costs will be
expensed at the rate of 6% per annum. The different phase of the project was divided into
different time period for the project, The distribution of the different time period for the complex
development project will be assessed based on the fact that the same will provide proper
distribution of the project. The relevant financing cost considered for the same was around 125
of the total amount of debt borrowed.
Methodology
The cash flow analysis for the project was based on the act that the revenue will be
escalated at 4%p.a and the annual increase in the revenue will be at 4% p.a for the first year
when the development expense will be around 40%. The remaining 60% of the total cost was
accounted with the fact that the inflation escalation will be at 6% p.a. The development cost and
the total cash expenditure paid for the development of the project was divided into factors, which
helped us asses the total cost. The final part of the project, which is the sale of the project to John
Willey Pty Ltd the cost at which the acquisition will be done. The acquisition will be done at 5%
per annum of the total development cost. The revenue forecast for the company was done for the
John Willey Pty Ltd was done at the 4% increase per year (Fu et al. 2015).

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Spreadsheet and Evaluation of the Factors Evaluated
Part A Column1
Development cost as of 1st July 2018
Particulars Amount($)
Land Acquisition Expenses 70,000,000
Amount Payable on Deposit equals 10% 10%
Initial Deposit Amount Payable 7,000,000
Demolition Expenses 800,000
Designing and Planning Expenses 3,500,000
Landscaping and External Expenses 500,000
Total Amount of Expenses to be incurred on 1st July 2018 11,300,000
Land Acquisition Expenses
Initial Deposit Amount Payable
Deemolition Expenses
Designing and Planning Expenses
Landscapping and External
Expenses
0 20,000,000 40,000,000 60,000,000 80,000,000
Development cost as of 1st July
2018
59%
7%
30%
4%
Development cost as of 1st July 2018
Initial Deposit Amount Payable Deemolition Expenses
Designing and Planning Expenses Landscapping and External Expenses

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1st July 2018 Land Acquisition Expenses 70,000,000 Initial Stage
Amount Payable on Deposit equals 10% 10%
Initial Deposit Amount Payable 7,000,000
Deemolition Expenses 800,000
Designing and Planning Expenses 3,500,000
Landscapping and External Expenses 500,000
Total Amount of Expenses to be incurred on 1st July 2018 11,300,000 Cash Outflow
30th Sept 2018 (1.07.18-30.09.18) Vesting period demolition period for the building Demolition of Existing Building (3 Months)
Builiding Demolition work from (1.07.18-30.09.18) 800,000 Cost Utilized over the mentioned Time Frame
1st Oct 2018 Transfer and Settlemnt for the Land Acquired Commnecement of Project
Amount to be Paid
Initaial Construction Stage Full and Final 90% Payment of Land 63,000,000 70 MN*90%
Provision for development Expenses 500,000 Dev. Expenses wil be taken per year
Development Expenses 74,800,000
Growth rate of Infalation of the Total 40% invested capital 4% 4% of 40% total capital invested is the Inflation Forecast
Total development Cost for the 40% Invested Caaptal 29,920,000 Total Development Cost taken was 74800000
Inflation Provision for the Project 1,196,800
Development Expenses with Inflation Provision 75,996,800 Accounted cost Till 31ST Dec 2018
1st Jan 2019 (1.10.19-31.03.19) Planning and Designing expenses 3,500,000 Utilisation of csot over the remaianing time
SeconDARY Stage of Construction Designing Cost 50,000,000 6 monthgs of total time for Designing
1st July 2019 Construction Time Perid 20 Months of Trime Frame Required
Cost to be spend for Construction 300,000,000
Tertiary Stage of Cosntruction Expenses for Deelopment 500,000 Development Cost to be spend per annum
Inflation Forecast per annum 6% of the remaning 60% of total assignment6%
Developmenrt Cost of the remaning 60% 44,880,000 Total Development Cost taken was 74800000
Inflation Provision for the Project 2,692,800
Development Cost Acounted with Inflation provision 428,689,600 Total Cost Accounted till 31.12.19
1st Jan 2020 Total Time frame for Construction is equal to 20 months time period for Construction
Development cost accounted per annum 500,000 Costs During Development Period Per Annum
Total Final Development Expenditure 429,189,600 Total Cost Accounted till 31.12.20
1st Jan 2021 Landscaping and External Work (1.01.21-31.06.21) 6 Months of Time Frame
4th Phase Development Cost (Per Annum Provision) 500,000 Costs During Development Period Per Annum
Total Development Cost 429,689,600 Total Cost Accounted till 31.06.21
1st July 2021 City Highrise Complex Development Project Developed

11REAL ESTATE EVALUATION
Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Gross Earnings 43,750,000 43,750,000 45,500,000 47,320,000 49,212,800 51,181,312 53,228,564 55,357,707 57,572,015 59,874,896
Escalation @ 4% 0% 4% 4% 4% 4% 4% 4% 4% 4% 4%
Gross Cash Flow 43,750,000 45,500,000 47,320,000 49,212,800 51,181,312 53,228,564 55,357,707 57,572,015 59,874,896 62,269,892
Minus: Sales Expenses -4,375,000 - - - - - - - - -
Expenses for Outgoings 12,400,000 12,896,000 13,411,840 13,948,314 14,506,246 15,086,496 15,689,956 16,317,554 16,970,256 17,649,066
Net Earnings from project 35,725,000 32,604,000 33,908,160 35,264,486 36,675,066 38,142,068 39,667,751 41,254,461 42,904,640 44,620,825
Analysis of Revenue breakdown for City Highrise Project
Particulars Square Feet Rate Amount
Available Office Area 75,000M^2 550/m2 41,250,000
Available Retail Area 5,000M^2 500/m2 2,500,000
Total 80,000 43,750,000
Assumption
Escalation of Revenue is accounted from the second year of the construction
Escalation of revenue will be taken as 4% p.a
Total Outgoing will be calculated on the basis of 155/m2(160-5 Recoverable Amount)*80,000m2
Escalation of the Outgoing cost will be assumed at 4% p.a
Return Required from project 12%
Net Value Created -305,562,500
Internal Rate for the Project -6%
Y e a r 1 Y e a r 2 Y e a r 3 Y e a r 4 Y e a r 5 Y e a r 6 Y e a r 7 Y e a r 8 Y e a r 9 Y e a r 1 0
35,725,000
32,604,000
33,908,160
35,264,486
36,675,066
38,142,068
39,667,751
41,254,461
42,904,640
44,620,825
Cash Infl ow