Building Project Evaluation: Feasibility Study of Jesmond Property

This report presents a feasibility study and evaluation of a proposed real estate investment at 16 Robert Street, Jesmond, Newcastle, NSW. The project involves constructing a three-level mixed residential and commercial building to accommodate students from Newcastle University. The report analyzes the Australian real estate market, focusing on Jesmond's potential. It examines the financial capacity of the investing company, conducts a site analysis, and details the development proposal, including project description, targeted customers, and construction costs. The report incorporates environment-friendly features and provides income estimates, investment proposals, and cash flow projections (before and after tax). It calculates IRR and NPV, conducts a risk analysis, and compares the market with comparable markets. The study concludes that the project is financially viable, with a detailed analysis of the real estate market and its potential for growth. The report provides information on market trends, financial projections, and risk assessments, offering a comprehensive overview of the investment opportunity. This comprehensive analysis supports the viability of the real estate investment, offering detailed insights into market dynamics, financial performance, and risk factors.

BUILDING PROJECT EVALUATION
16 Robert Street, Jesmond

TABLE OF CONTENTS
LETTER OF TRANSMITTAL............................................................................................................3
INTRODUCTION................................................................................................................................4
EXECUTIVE SUMMARY..................................................................................................................4
OVERVIEW OF THE AUSTRALIAN MARKET..............................................................................6
Analysis of Real Estate Market.......................................................................................................6
Jesmond...........................................................................................................................................7
FINANCIAL CAPACITY....................................................................................................................8
SITE ANALYSIS..................................................................................................................................9
LOCATION CHARACTERISTICS.....................................................................................................9
SURROUNDING FACILITIES...........................................................................................................9
PHYSICAL CHARACTERISTICS...................................................................................................12
LEGAL CHARACTERISTICS..........................................................................................................12
DEVELOPMENT PROPOSAL.........................................................................................................12
DESCRIPTION OF THE PROJECT.................................................................................................12
Project : Mixed Commercial and Residential Development.........................................................12
TARGETED’ LIKELY CUSTOMERS..............................................................................................13
SCHEDULE FOR DEVELOPMENT................................................................................................13
CONSTRUCTION COST..................................................................................................................14
CAPITAL............................................................................................................................................14
ENVIRONMENT-FRIENDLY FEATURES INCORPORATED INTO PROJECT..........................15
Urban Design.................................................................................................................................15
Labor..............................................................................................................................................15
Noise..............................................................................................................................................15
Materials and waste.......................................................................................................................15
Energy............................................................................................................................................15
INCOME ESTIMATE........................................................................................................................16
INVESTMENT PROPOSAL.............................................................................................................16
CASH FLOWS – BEFORE TAX.......................................................................................................16
AFTER TAX CASH FLOWS............................................................................................................17
IRR and NPV- BEFORE TAX............................................................................................................17
IRR and NPV-AFTER TAX...............................................................................................................17
RISK ANALYSIS OF INVESTMENT AND SUSTAINABILITY...................................................17
RISK MATRIX...................................................................................................................................18
COMPARABLE MARKETS.............................................................................................................19
REFERENCES...................................................................................................................................20
APPENDICES....................................................................................................................................22

LETTER OF TRANSMITTAL
The Management
Real Estate Pty Ltd
Newcastle City
1234 Victor Road
January 2017
To the Client
Sydney,
2314 Wisshes Road
Sydney
Dear Sir/ Madam
Reference: Property Valuation Report for 16 Robert Street Road, Jesmond,
NSW
The above refers; this report is a valuation of the named property, using the API (Australian
Property Institute) standards. The facility is valued based on the returns it can provide when
purchased and developed as a real estate business, specifically, a student accommodation facility
with 105 rooms and a small commercial section covering 1450 square meters. The valuation is done
based on present and projected financial and economic conditions, as well as social dynamics.
Assumptions are made, such as that the real estate market will not collapse or the economy faces a
recession that can drastically lower real estate prices. The report is made on January 2018. The
report is done step by step, with external factors evaluated, internal dynamics also evaluated, and
risks that the project may face also analyzed. As such, the report is accurate and factual to the limits
of assumptions made
Regards
Real Estate Pty Ltd

INTRODUCTION
This report details the feasibility study and evaluation of a proposed real estate investment in NSW,
in Newcastle City at Jesmond. Specifically, the report looks at the feasibility of constructing a 3
level mixed residential and commercial building at 16 Robert Street in Jesmond that will be used to
provide accommodation to University students studying at Newcastle University. The project looks
at putting up 105 accommodation rooms, motivated by the large student population at Newcastle
University and the scarcity of adequate accommodation for these students. Further, the region
(Newcastle) is touted a the next big growth area in real estate; this study therefore seeks to justify
whether the proposed investment on 2500 square feet of land at 16 Jesmond street is feasible, by
computing its cash flows, and net present value for an intended development and use of the facility
for ten years, after which it will be sold off.
EXECUTIVE SUMMARY
The ‘company’ is looking at making an investment into real estate; recently, here has been an upturn
in the real estate sector in Newcastle in NSW; with analysts projecting that it is the next growth
frontier for real estate. With a projected population growth of 33 % by the year 2016, the region will
see a huge demand for real estate. In looking at the region, it was decided that Jesmond, a dormitory
town for Newcastle City, and just 9.5 km from the Newcastle CBD, offered a good investment
opportunity. This is because land rates are still lower than purchasing the same amount of land in
within the Newcastle CBD. As such, a search returned a suitable piece f land, Number 16 Robert
Street, Jesmond, measuring 2500 square meters. The land has straight edges and is rectangular with
triangular shaped edges. Its shape makes it an ideal investment for real estate given that it will
maximize utilization of space. The piece of land is 80% vacant, with an old building and a few
structures touching the Robert Street road. The zoning for the areas means it can be used only as a
residential area with rating of residential zone Type A. The piece of land can easily take 11 three
bedroomed residential houses; however, the company wanted a different approach that would
enable it serve the needs of the community better and attain higher returns. The University of
Newcastle has a student population of 26615 in Newcastle City and at Jesmond, meaning this is a
long term investment with guaranteed results. It is proposed that a student accommodation be built
as well as a few commercial facilities where small restaurants, laundry businesses can be put up.
The proposed development is a mixed use facility with three levels and an underground parking.
Based on construction rates, the building will cost a total of $ 13.2 million to construct, including all
other costs. The proposed building will be developed using solar technology and double envelope
large windows for maximum natural lighting and to reduce air conditioning needs. Further, solar air

conditioners will be installed and solar panels used to minimize energy consumption. Some of the
anticipated risks include business, vacancy, environment, structural, project, management, and
legal risks. Computing the IRR and NPV using the cash flow method shows that the business is
viable; the IRR before tax is 12.2% with an NPV $ 8,931,854, while after tax, the IRR is 10.2%
with an NPV of $ 5,530,440 using a discounted cash flow rate of 6%. the findings show that it is a
viable business; the tax rate used is 30% with annual depreciation of 2.5%. selling off the facility
after 10 years means it remains a very viable investment. The project will take 36 weeks to
complete

OVERVIEW OF THE AUSTRALIAN MARKET
Australia has a highly developed economy and is considered among the largest mixed economies
globally, with a GDP (Gross Domestic Product) of $ 1.69 trillion (in Australian Dollars) (Holden,
2018). Considered in terms of wealth per adult, Australia is the second wealthiest country in the
world, behind Switzerland, with a total wealth of $ 8.9 trillion as of 2017 (Pash, 2016). It is the 14th
largest economy (national) in terms of GDP and is the 25th largest exporter of goods among the
world national economies (Tasker, 2017). The country’s economy has consistently performed well,
ensuring a sustained GDP growth for 26 years, with its last recession reported 27 years ago; even
the global economic recession of 2007/2008 did not affect her economy (Kopf, 2017). The service
sector accounts for a major portion of the country’s GDP, at 61% of total GDP and this sector is also
the biggest employer, employing 79% of the total labor force as of 2017 (Garnett, 2015). Australia
has the 16th largest stock exchange (the ASX) in the context of domestic market capitalization; the
country also has the largest interest rate derivatives in the Asian region (Martin, 2016). The
country’s economy is a fully liberalized free market economy. Its GDP grew by an average of 3.4%
between 1999 and 2008, and by an average of 2.7% between 2009 and 2014 (‘Focus Economics’,
2017). In 2018, the country’s GDP id projected to grow by 2.7%, same for 2019 (Holden, 2018).
The GDP growth is shown in the chart below;
Source: Trading Economics
Analysis of Real Estate Market
Interest rates are dropping in Australia; coupled with steady economic growth and other indicators
such as th weakening of the AUD, the real estate sector has benefited significantly. Sydney and
Melbourne recorded the strongest property execution in 2015 - a pattern seen in 2016 and 2017, and

expected to continue in 2018 ('CB Richard Ellis', 2018). Those sway from claiming easier
investment rates need been specifically felt in the retail and private property sectors, same time
further downstream benefiting office rates. The real estate sector has greatly benefited from lower
overall interest rates, helping spur growth (‘Trading Economics’ 2017). According to Bleby (2015),
the property market is now among the biggest industries in Australia, larger than mining, the
financial services, home ownership and has doubled its contribution to the overall GDP in the past
ten years. In 2016, the sector contributed 11.5% of GDP, equivalent to $ 182.5 billion and plans are
underway to lobby for legislation that would promote its growth further
Jesmond
Jesmond is a a suburb located about 9.5 km West of the Newcastle central business district in New
South Wales, Hunter Region. The suburb is a dormitory suburb of Newcastle as well as a
commercial center and has residents that are both Australian and international; the majority of the
international residents being students attending the nearby University of Newcastle. It is a multi
cultured suburb because f the many international students studying at the University. It is
characterized by several aged buildings and has a population of 2442 people living in 1144
dwellings (Butler et al., 2016), . However, the vast number of residents are students studying at the
University of Newcastle, which had a total student population of 26615 students, located at the
Newcastle City and Callaghan campuses. The demand for real estate in Newcastle is very high,
especially residential rental houses in the area. The figure below shows the demand for rental
houses in Newcastle;

The rental houses yields have also been on an upward trend in the past two years, and is expected to
continue rising ('Newcastle City Council', 2018)
While Sydney has been the ‘king’ of real estate in Australia, Newcastle and its environs is the next
big growth frontier, with the population of the city expected to grow by 33% by the year 2036. The
city CBD has been revitalized, with the NSW government also making a $ 6.5 billion and improved
amenities. Further, a new university wing has been developed and is attracting increasing numbers
of international students. The median house prices in Sydney is $ 530000, which makes it an
interesting real estate investment location. Further, with such high rent rates and many students, as
well as a huge and rising demand for housing, Jesmond becomes an ideal place to invest in real
estate, being just a short hop away from Newcastle CBD, and about ten minutes drive (half an hour
walk, or 20 minutes cycling) from the Callaghan campus of the Newcastle university (Schipp, 2017)
.
FINANCIAL CAPACITY
The company wishing to invest in the property is a relatively new real estate firm that has an Equity
value of $ 7 million and $ 700 000 in cash for operations and investments. The company will make
a significant investment in putting up the facility; the investment will also include the cost of
acquiring the land and other legal requirements and stamps, drawing of building plans, and getting
approvals from the local authorities to commence construction.

SITE ANALYSIS
Jesmond is a transport junction and a dormitory town for Newcastle City; with the projected huge
growth in population, and increasing demand for housing and accommodation within the wider
Newcastle region, coupled with rising real estate prices, the location is ideal as an investment in real
estate. It is expected that the prices of real estate in the region will continue to appreciate fast, and is
a hot investment destination, that may surpass Sydney in the future. The chosen property is a vacant
land, commercial grade investment, with a few old structures that will have to be brought down.
Further, the facility is located at 16 Jesmond street in very close proximity to to Jesmond Public
School. The facility is 2500 square meters with a large frontage of 22.6 meters ('Century 21
Australia', 2018).
LOCATION CHARACTERISTICS
The piece of land is located in 16 Robert street with a single 3 bedroom old house touching the
tarmac and a large portion of the land being vacant. The land is flat with just a gentle slope towards
the back, covered in grass, some shrubs, and a few trees. The land is well serviced with a road on
the frontage and has services that include sewerage, water, and electricity ('Newcastle City Council',
2018). Based on its location, it only requires strategic development for maximum returns. The
approach price for the facility if $ 700000, which is feasible and realistic for the intended
investment, given that 80% of the property is void and ready for development.
SURROUNDING FACILITIES
The area is very close to the Jesmond Public school, it is also a walking distance to the Jesmond
Shopping Center and is also a very short distance to the Newcastle University. This makes it a
perfect site for development and indications show that it can take up to 12 town houses. The area is
surrounded by other residential structures in its immediate neighborhood, and other surrounding
facilities include public schools (Jesmond Public School, Jesmond Campus, Callaghna College,
Heaton Public School, Wallsend Public School, Lambton Public School, Plattsburg Public School,
John Hunter Public School, and Waratah West Public School). There are also severa private
schools nearby, including St. Johns Primary School, Aspect Hunter School, Our Lady of Victories
primary, Waratah West, St. Patrick's Primary School, St. Phillip’s Christian College, Corpus Christi
primary School, and Margaret Jurd College. The location is surrounded by various amenities that
include Parks such as McClure Reserve, Hugo Reserve, and Jesmond Park. The available services
include the Jesmond Post Office, New Lambton Post Office, Lambton Post Office, and the Wallsend
Post Office. Transport is readily available with both pubic road and train transport, a good roads
network suitable for private transport, cycling, or even walking to the nearby facilities ('Century 21
Australia', 2018). The images below show the site

PHYSICAL CHARACTERISTICS
The facility has rectangular shapes and triangular shapes on some edges, making it an ideal
developers’ site due to mostly straight edges and predominantly geometric shapes. The land is 2500
square meters, with a lettable area of of 92% 2300 square meters (see Appendix I for plans for the
building). The proposed buildings on three stories will create a total floor area of 6900 square
meters, which will provide a very large floor space for utilization ('Century 21 Australia', 2018).
LEGAL CHARACTERISTICS
The area is zoned by the Newcastle Municipal Council as a residential area Zoning A, with the
primary land use being a residential area.
DEVELOPMENT PROPOSAL
Given the potential for the area, a large student population, and demand for residential property
(Kelly, 2015), the proposed development is for hostel type developments to be used for external
accommodation by students at the Newcastle University. The proposed development is a mixed use
property, with a few commercial facilities that can be rented out for a restaurant, ice cream parlor,
stationery shops, amongst other small businesses. This is because the area is highly multi cultural
(Branley, 2012), and there will be demand for restaurants and eateries to cater for the cosmopolitan
global populations and cultures living and studying at the university. Being a primarily
accommodation property, different room configurations can be achieved to cater for both
undergraduate and post graduate students studying at the University. These will be small size
apartments/ rooms that are self contained with some sections having common kitchens for students,
and some being fully self contained living apartments with in built kitchens. The envisaged
outcome is an accommodation structure that will have several rooms to maximize returns. With the
University of Newcastle having received a recent upgrade and with future prospects for growth, the
proposed facility offers long term rental incomes, that are on average higher than residential rental
properties.
DESCRIPTION OF THE PROJECT
Project : Mixed Commercial and Residential Development
The facility will have three floors for the residential apartments and a similar number of floors for
the commercial section. The accommodation section will have an underground parking developed
for student parking and to maximize the use of the land. The commercial section will be located on