You would like to bid for the property – Manchester Urban Living (MUL) – as one of your potential real estate investments. In this assignment, the main task is to consider and analyse the information given below
You would like to bid for the property – Manchester Urban Living (MUL)
ADVANCED REAL ESTATE FINANCE
Acquisition of the Manchester Urban Living (MUL)
You would like to bid for the property – Manchester Urban Living (MUL) – as one of your potential real estate investments. In this assignment, the main task is to consider and analyse the information given below and determine a bid price.
(NOTE: The information provided in this assignment is hypothetical. The assignment brief and the information contained in this brief should not be distributed or used for any other purposes than completing the assignment for this unit).
The MUL is a mixed retail and residential complex located in a popular area of Manchester. It consists of 270 apartments across eight levels with 40 two-bedroom units (91m² each), 160 onebedroom units (63m² each), and 70 studio units (49m² each). The apartment tenants are on two lease lengths — a 12-month lease and a month-to-month basis.
Three other apartment buildings in the local area also offer similar accommodations and services with similar property attributes as with the MUL. There are retail units, similar to the MUL, on the ground floor of each these three properties. You can use these as the comparable properties. The most recent information on these comparable properties is provide in Exhibit I below: There are eight retail units across the total space of 2,153m² on the ground floor. See Exhibit II below for the net surface areas for individual retail units. Six retail units are up for renewal in 4 to 6 years from now. However, the leases for the Unit 1 and Unit 2 expire in 1-2 years from now.
The current tenants of both Unit 1 and 2 are looking to downsize to smaller units.
As there are other properties and projects under construction in the market, there may be a 30% to 40% probability of renewal of this lease prior to the expiration of the current lease. Additionally, you are willing to provide a discount of 8-10% on the current rent.
However, if the lease is not renewed, you will probably face a vacancy of about 6-9 months. Further, you will be able to obtain a rent of 80% to 90% (most likely 85%), of the current rent. For all other retail units, given that renewal of the leases is due in 4 to 6 years, the current contract rents can be expected to remain steady and a typical vacancy allowance of 3 months will be sufficient to attract new tenants.
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