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RETAIL DEVELOPMENT PROJECTAdapting to Changing Market Conditions

Marketing 4411Case 6 T

Malisa ChhuonDemetre Christou

Blair Stewart

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AGENDA

Assumptions Business Case

Resale Business Plan IMC Plan

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ASSUMPTIONS

Marketing team from BDM Properties Developer wants to abandon retail-mixed use

project by November 30th,2010 Mitigate risk / loss and avoid 2% surtax

Sell land and build-out plans to a developer

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Action PlanMeasure & EvaluateAct

Plan

Past 7 days have shown economic changes affecting cost of money

Must re-evaluate strategy

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BUSINESS CASE

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BUSINESS CASE

Market Updates

Comparative sites

Go Criteria

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Market UpdateGO CRITERIA UPDATE

GO Criteria dependent on:1. Is there a need for serviced land within this market?

North Surrey (South Whalley)

2. Can we mitigate risk & loss?

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NEW DEFINITION

Market and sell serviced land

Include development proposal

Justifies land-price increase

Economical

• Prime rate has increased to 3.25%

• Canadian banks raise prime rate by 1.25%

• Mortgage rates increased by 1.25%

– Commercial mortgage: Median rate is at 5.25%

• Jan 1, 2010 – 2% surtax on all Real Estate transactions

MARKET UPDATE

Social

Consumer confidence in British Columbia:• 92.8 points

– 8.3% from 100.5 points

Canada consumer confidence• 84.8 points

– Fell 7.8 points

MARKET UPDATE

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FUELInterest Rates:

Prime – 3.25%

5 Year – 6.25%

Market UpdateCOST OF MONEY

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Cap Rates

Retail: 6.3% - 6.8% Office: 5.7% - 7.4%

Rising interest rates = Rising cap rates Must be taken into consideration when re-

evaluating contingency plans

Market UpdateCOMPARISONS

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13652 108th Ave Size SF: 15,768 $725,000 $45.97 / sq.ft

10662 King George Hwy Size SF: 102,366 $6,480,000 $63.30/ sq.ft

10315 133rd St Size SF: 43,560 $3,995,000 $91.71 / sq.ft

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LAND COST - ASSUMPTION

Maximum we were willing to pay (13% Profit): $4,200,000.00Amount we paid for the property in April, 2010: $3,000,000.00

$69.52per square foot

Median of comparables: $63.30per square foot Close to our location Not a corner lot Further north (Whalley) More competition within area

$600,000.00 higher than assessed value

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BUSINESS CASE“GO” CRITERIA

GO Criteria: Is there a need?

Can risk be mitigated?

YES

YES

OCP suggest need for more commercial businesses; our land is favourably zoned to accommodate

the need

Comparisons show that owner can still recover investment costs. Potential for profit.

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BUSINESS CASESummary

Market Update

Comparative sites

Go Criteria

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BUSINESS PLAN

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BUSINESS PLAN

Vision

Execution Plan

Contingency Plan

Measurement & Evaluation

Action Plan

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BUSINESS PLANVision

To Market and Sell: Serviced bare-land in Whalley to a developer for $4,280,000 Include build out development proposal which reflects our

end price

UVP: Unique build-out plans and favorably zoned property located

strategically in up and coming community

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BUSINESS PLANFinancial StrategyFinancial Summary Budget Price per sq.ft % of Project Cost

Land Cost $ 4,280,000 $ 30.10 11%

Development/Construction hard cost $ 24,190,000 $ 169.89 62%

Soft and financing costs $ 4,500,000 $ 31.74 12%

Profit $ 4,000,000 $ 28.04 10%

Marketing costs $ 935,000 $ 6.57 2%

Contingency $ 1,270,000 $ 8.95 3%

Total $ 39,175,000.00 $ 275.28 100%

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BUSINESS PLANFinancial Strategy

Financial Summary Budget per sqft of gross

floor area % of Project

Cost

Land Cost $ 3,000,000 $ 21.07 70%

Financing costs $ 130,700 $ 0.92 3%

Profit $ 958,560 $ 6.73 22%

Marketing costs $ 190,740 $ 1.34 4%

Total $ 4,280,000.00 $ 30.06 100%

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BUSINESS PLANContingency Plan

PLAN B

Sell land at $3,750,000 Decrease profit to 10% Increase developer profit to 12%

Sell land at $3,200,000 Increase in developer profit to 13%

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BUSINESS PLANContingency Plan

PLAN C If market conditions turn favourable

Example: Increasing lease rates, lower interest rates, etc.

Reassess and possibly build-out according to original plan

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BUSINESS PLANMeasurement / Evaluation M

easure & EvaluateAct

Plan

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Project Timeline Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10

Task

Market Research

Land Acquisition

Project Design

Land Survey

Municipal Approval

Marketing

BUSINESS PLANAction Plan

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BUSINESS PLANSummary

Vision

Execution Strategy

Contingency Plans

Measurement & Evaluation

Action Plan (Timeline)

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IMC PLAN

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IMC PLAN The Six P’s

Target Markets

Market Target

Budget Analysis

Measure & Evaluate

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IMC PLANTarget Markets

Private Investors Focus on Real Estate

Qualified Financial and Market

Experienced

Seeking new investment Opportunities

Trusts & Syndicates Focus on acquisitions + Leasing

Based in Vancouver

Diverse portfolio Retail, Industrial, Office

Seeking new investment Opportunities

Local Developers Focus on acquisitions + Leasing

Based in Vancouver

Diverse portfolio Retail, Industrial, Office

Seeking new investment Opportunities

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IMC PLANTarget Market

Market Target #1Development Companies

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IMC PLANTarget Market

Potential InvestorsSimon Property Group Bucci Group

General Growth Properties CBL & Associates Properties Inc.

Kimco Realty Corp Mills Corp.

Developers Diversified Realty Terrex Real Estate Group

The Inland Real Estate Group of Cos Anthem Properties

Onni Group Porte Realty

Macerich Co. Westfield America

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IMC PLANMarket Target

Simon Property Group Bucci Group

General Growth Properties CBL & Associates Properties Inc.

Kimco Realty Corp Mills Corp.

Developers Diversified Realty Terrex Real Estate Group

The Inland Real Estate Group of Cos Anthem Properties

Onni Group Porte Realty

Macerich Co. Westfield America

Potential Investors

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IMC PLANMarket Target

Developer / Development Manager / Project Managers

Retail, Commercial, & Residential portfolio

Experience and success in Surrey

Company Principals are knowledgeable and successful

Panorama Place(Mixed use Retail and Office)152nd and King George Hwy

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IMC PLANMarket Target

Developed similar projects

Based in Vancouver

Focus on income-producing real estate

Diverse portfolio Retail, Industrial, Office,

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IMC PLANMarket Target

Diverse development portfolio

Similar developments in our area (Guildford)

Opportunistic developers

Successful developments in GVRD (including Surrey)

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IMC PLANMarket Target

40+ years of experience in GVRD

Diverse portfolio

Experience in Surrey

10+ commercial properties in GVRD

Successful track record

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IMC PLANBudget Analysis

Marketing

Creative $10,000

Advertising/Printing/Signage $20,000

Commission (3%) $85,600

Miscellaneous (Car, Insurance, Gas, Cellphone) $15,000

Contingency (10%) $13,060

Total Marketing Costs $143,660

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IMC PLANMeasure & Evaluate

Measure & Evaluate

Act

Plan

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IMC PLANSummary

The Six P’s

Target Markets

Market Target

Budget Analysis

Measure & Evaluate

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CONCLUSION

Business Case

Business Plan

IMC Strategy