Question 1

The Fund is reviewing investing into 600 hectares of land in the outskirts of Bangkok and would need to issue a Request for Proposal to real estate consultancy companies to help analyse the investment opportunity.

Your Fund Director wants to develop an investment brief which explains the process behind the proposal to invest into this township development opportunity so that the investors can understand the rationale considerations behind this investment.

You have been tasked to prepare concise notes on two aspects of this investment review: identify and explain the two key macro investment considerations and key milestones in the development process.

(a) Outline and explain what are the TWO (2) key macro analytical insights which we need to have to make an investment case for acquiring this land bank. Indicate and explain each of the factors which need to be considered in these two insights.

(b) Outline the key milestones in a development process and briefly explain the key elements of each milestone. Highlight TWO (2) challenges that one would typically experience in such development project.

Question 2

Your Finance Director has come to you to ask you to develop a brief to the investors outlining the capital options that can be considered for this investment. As the investors are asking for explanation on how the investment is to be funded, your Finance Director feels it is helpful to explain the various capital options available and what would be an appropriate capital to use.

(a) Explain the main sources of capital and discuss the pros and cons of each type of capital.

(b) Demonstrate how you would develop a required rate of return using Capital Markets Pricing Model and explain how you can obtain each component of this empirical formula. Compute the required rate of return.

(c) If you must raise $1B of funding and your investors are agreeable to providing only $650M at their required rate of return and the balance is to be financed through debt at a cost of 7%, what is the weighted average cost of capital? State the investment hurdle rate be established.

Question 3

You have been asked by your Fund Director to assist another fund platform which is focused on value-add investment opportunities in Singapore that deliver a compounded return of 15% annually. They have been inundated with many investment opportunities and did not have the bandwidth to review of all these investment opportunities.

As a result, they had reached out to get assistance on one investment opportunity which they need to be check whether it can proceed for serious investment focus. You have been assigned to review this and was told that time value of money need not be considered in this initial vetting process. You are to assess whether this opportunity can be recommended to the team for further evaluation.

The Opportunity is an existing land site of around 4.25 hectares in Singapore and that the permitted Gross Floor Area is 104,500 square meters. The Permitted use is that of a commercial office.

You have been advised by external real estate consultants that the Net Rent after the construction period is around S$ 1450/m2 for commercial office located in the same vicinity.

Your research team has advised the fund that planning/design/procurement and construction periods are estimated to be 12 months and 36 months respectively, and the construction cost of office building is S$3,350 per m2
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The site investigation and authority fees (Planning and Building) are S$200,000 and S$300,000 respectively. The design of new office building can achieve 88% of efficiency. You have access to project development financing at 7.5% per annum. Funding and finance costs are not included in this project development financing.

You can assume full occupancy upon completion of construction and that the project would be sold with full occupancy immediately upon achieving TOP.
You have been asked to analyze this opportunity on the understanding that the Land will be priced at S$1B and there would not be any transactions costs on land acquisition.

(a) You are to conduct an analysis using the attached template (Appendix A) and recommend whether this investment opportunity can be passed on for a more focus evaluation or be rejected outright.

(b) Explain why this analysis outcome on its own is not adequate to formulate a firm decision by the firm to proceed or not.

(c) If the project is not able to meet the hurdle rate of 15%, what are the considerations which are required to make this investment exceed the hurdle rate?