Question 1
The Government Land Sale Programme is instrumental in shaping the physical development of Singapore into an attractive city with a good quality of life. GLL D Pte. Ltd., Intrepid Investments Pte. Ltd. and Hong Realty (Private) Limited has a successful bid for the white site at Tan Quee Lan Street: https://www.ura.gov.sg/maps/?service=GLSRELEASE&site=953
Estimated Site Area: 11,530.8 m²
Gross Floor Area: 48,430 m²
Lease Period: 99 years
Land Use: Residential with Commercial at 1st Storey
Successful Bid Price : $800,190,000
Planning & Urban Design Requirements:
Maximum 4 % to 5 % of GFA may be developed for commercial uses at the 1st story.
Maximum 28 % to 30 % of GFA may be developed for serviced apartments.
Office, condominium, and strata landed houses are not allowed.
Total GFA to be built is not to be less than 43,587 m².
Community facilities, such as childcare or infant care center, can be allowed. The gross floor area is computed outside the 4 % to 5 % commercial use.
Assuming you are the asset manager of the joint venture company created for this project, with the aid of MS Excel, appraise the rate of return for this white site using discounted cash flow analysis.
Embed your MS Excel file into your MS Word file (MS Word>INSERT>Object>Create from File>Browse>Select your MS Excel file>Insert>Select “Display as an icon”>Click “OK”).
Use the following assumptions:
Construction cost of commercial element = $2,700/m²
Construction cost of serviced apartment = $2,950/m²
Construction cost of communal facilities = $3,000/m²
Ratio of lettable floor area to gross floor area = 0.9 : 1
Commercial/Communal monthly rental = $15 psf
Service apartment rental = $10 psf
Monthly operating cost = $1 psf
Every 5 years rental income and outgoing expenses increase by 5 %
Outgoing expenses increase by 10 % after Year 30
Lifespan of proposed building = 60 years
Vacancy rate = From Year 10 onwards, every 5 years at 5 %. From year 30, every 5 years at 10 %.
1 m² = 10.7639 feet
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Question 2
Assuming you are a facilities asset manager and you found a piece of land that would be perfect for your asset portfolio.
(a) Recommend the TWO (2) approaches you can use to appraise the land and give an offer to the seller.
(b) Demonstrate the process of your appraisal to justify the offer to the seller for the piece of land.
Question 3
Comparing the Net NPV and IRR figures in Question 1, answer the following questions:
(a) Appraise the figures of NPV and IRR in Question 1.
(b) Demonstrate the key reasons for facilities asset managers to calculate both NPV and IRR.
(c) Which method is more suitable to help an asset manager make a more realistic long term investment project decision? Appraise the reasons for your selection.
(d) In the analysis of both NPV and IRR, demonstrate which methodology does not have a discount rate issue.