Bohan, A Course Project

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Cornell University *

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6628

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Finance

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Apr 3, 2024

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COURSE PROJECT Feasibility and Market Analysis Instruction s In this course project, you will explore how cash flow forecasting is based on a series of assumptions that can and should change with more information . Except as indicated, use this document to record all your project work and responses to any questions. At a minimum, you will need to turn in a digital copy of this document to your facilitator as part of your project completion. You may also have additional supporting documents that you will need to submit. Note: Though your work will only be seen by those grading the course and will not be used or shared outside the course, you should take care to obscure any information you feel might be of a sensitive or confidential nature. Complete each project part as you progress through the course. Wait to submit the project until all parts are complete. Begin your course project by completing Part One below. Submit your completed project on the final project assignment page online. Information about the grading rubric is available on any of the course project assignment pages online. Do not hesitate to contact your facilitator if you have any questions about the project. 1 Feasibility and Market Analysis Nolan School of Hotel Administration © 2023 Cornell University

Part One Forecasting Rents and Occupancy Rates In this part of the course project, you will provide your estimate of the stabilized occupancy for the various components of Cayustoga Center as summarized in the provided rent roll spreadsheet. To complete this part of the course project, you will review the Cayustoga Center rent roll spreadsheet and summarized information below from the supply and demand analysis performed in this module. Using your estimates of the capture rates for each of the components, you will complete the occupancy forecast. The supply and demand analysis in this module revealed the following: ● The multi-family units are approximately 8.4% of the existing supply of four- and five- star apartment units in the Lancaster metro area. ● The multi-family units will take two years to stabilize. o Year 1 vacancy is expected to be 15%. o Year 2 vacancy is expected to be better than the market; the project will capture more than its fair share of demand. In addition, the opening of the project is expected to serve the significant unaccommodated demand in the market. ▪ The expected market vacancy for four- to five-star multi-family units is expected to be 1.7% in Year 2. ● The retail is approximately 2.7% of the existing supply of neighborhood retail in the Lancaster metro area. o The Upscale Grocery Anchor site will be fully occupied from the start of the project under a 30-year ground lease. o The Main Street Retail space will take three years to stabilize. ▪ Year 1 vacancy is expected to be 30%. ▪ Year 2 vacancy is expected to be 15%. ▪ Year 3 vacancy is expected to be better than the market because the Main Street portion of the project will capture more than its fair share of demand. In addition, the grocery-anchored portion of the retail project will be fully occupied on a ground lease from Day 1. ● The expected market vacancy for Neighborhood Retail is expected to be 7.0% in Year 3. 2 Feasibility and Market Analysis Nolan School of Hotel Administration © 2023 Cornell University

Instructions: 1. Complete the Cayustoga rent roll spreadsheet using your estimates of the capture rate. The spreadsheet mirrors the information above with one exception: The capture rate is specified at 100% as shown in the blue cells. 2. Provide a summary projection of the stabilized occupancy. You can find this information in the spreadsheet calculated in the Occupancy tab, Column K, Rows 6, 7, and 8. Enter response: The Main Street would have a 93% occupancy and the Apartments would have an 98.3% occupancy. 3. Provide a justification for each capture rate estimate. Offer a short narrative detailing why you feel the capture rate is correct. Note : Your capture rate estimate cannot result in a project occupancy of more than 100%. Enter response: The Main Street would have a 93% occupancy and the Apartments would have an 98.3% occupancy. Both of these are solid estimates. Since the multi- family units make up 8.4% of the apartments in the Lancaster area, there are many attractive amenities, great location, and they are new I believe this number would be fairly accurate. In regards to the retail component, I think with the fact that they offer a range of retail including both national and local, and they plan to be around 93% occupancy by the 3rd year this is also an accurate description. 3 Feasibility and Market Analysis Nolan School of Hotel Administration © 2023 Cornell University

Part Two Forecasting Revenues, Expenses, and Cash Flows In this part of the course project, you will use the Cash Flow Estimates Template spreadsheet for the Cayustoga Center to focus on benchmarking and a “what if” analysis. To complete this part of the course project, you will benchmark expenses for a provided scenario using both external sources and best practices provided in this module. You will then perform a “what if” analysis to explore cash flows when certain parameters are changed. You may refer back to the Cash Flow Estimates Template Instructions to assist you. Part A — Benchmarking Instructions: Review the following scenario and update the “Cash Flow Estimates” spreadsheet based on the provided information. Scenario: Imagine you work for RealCo, the developer of the proposed Cayustoga Center project. You are responsible for helping to finalize the forecast of revenues and expenses for the project. The project was put on hold for various reasons, and you were provided with the projected performance when the project was shelved. The occupancy forecast has both the updated market occupancy and capture rates for the various spaces. The market occupancy forecast has been updated using external sources and the capture rate is determined by your evaluation of the project’s relative positioning within the market. To complete the forecast of revenues, your RealCo team has updated the inputs as follows: ● Miscellaneous retail revenues will start at $0.21 per square foot. ○ Inflation is expected to be 4% in Year 2, 3.5% in Year 3, and 3% in Years 4 and 5. ● Miscellaneous multi-family revenues will start at $310 per unit. ○ Inflation is expected to be 4% in Year 2, 3.5% in Year 3, and 3% in Years 4 and 5. 4 Feasibility and Market Analysis Nolan School of Hotel Administration © 2023 Cornell University

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