SSUD71-108: Development & Investment Lending Proposal - Finance Assignment

Internal Code: MAS6188

Finance Assignment:

PD Company proposes the development of a retail shopping centre of 2,800sqm located at the corner of Cotlew and Wardoo Streets, Ashmore on the Gold Coast. The proposed development will have a total of 1,400sqm of space and seven tenancies. The development of this brownfield site is based on a market study, which indicates demand for a fast-food outlet, a drive-through liquor facility and a convenience store in this precinct. The project details are as follows: 1) Development approval: approx. 3 months. Professional costs for the approval application are approximately $180,000 2) Estimated construction cost $2,540,000. Tenants provide their fit-outs. 3) Consultants $220,000 4)Land cost $1,290,000 5) Professional fees $240,000 6) Risk-weighted budget contingency $250,000. If you require further information please make your own assumptions and include these in a supporting Appendix to the advice/report. PD Company has a strategy to carry out the development and hold the investment for a term of up to 10 years. PD has $1,340,000 to invest in this project and seeks your advice about obtaining the following loans: 1. A construction loan to meet the cost of developing the centre 2. An investment loan for a period of 10 years on completion. Questions: Prepare a detailed term sheet for the transaction taking into account current market conditions. Your answer should draw on prevailing interest rate information published every Friday in the Australian Financial Review (available in the Bond Library) or published online by the banks and other property lending institutions. You may need to separately price the development loan and the investment loan.