A client of yours, Mr I M Unsure, owns a property on Oxford Road in Rosebank Your client used to live in the property It was originally built as a house in 1962 During the late 1980s and early 1990s the Council started to allow properties on Oxford Road to be re zoned and your client had the property re zoned in 1992 as follows Use zone Business 1 Height zone Ho Your client moved out of the property in 1993 and after renovating the property has been letting the property as a commercial property A firm of architects, called New Design Architects, currently occupies the property It is a big property with a land size of 4 000m and the building is 800m under roof The gross lettable area (GLA) is 750m The current lease is a triple net lease and your client receives R105 m month net in rental In terms of the current lease agreement, rentals escalate at 8 per annum compounded and current capitalisation rates in the area are around 9 5 There is currently no mortgage registered over the property Operating costs amount to R25 m per gross lettable square metre The CEO of New Design Architects, Mr John Tangent, has approached your client and presented your client with a proposal John has suggested to Mr Unsure that he re develop the property John has recommended that the current structure be demolished and that a new office block be developed The property will have to be re zoned from Business 1 to Business 3 John has indicated that New Design will undertake all the design work and project management, at no cost, but in return receive a 10 equity share in the property New Design will also manage the property, once complete, at no cost, for their 10 equity share Mr Unsure will have to fund the whole development John has presented your client with the following information Cost to demolish each the existing structure, including site clearance R350 000 Re zoning costs (town planners fees) R120 000 Construction costs for A grade office space amounts to R8 500 m Landscaping costs amount to R400 000 Paving will cost R600 m You must allow for 200m on site for the area to be landscaped Any additional available area can be used for parking This additional area is to be paved The balance of the parking is to be provided underground Underground parking costs R70 000 per bay Allow for 30m parking bay, both aboveground and underground Round up or down the number of parking bays to the nearest unit Air conditioning for the office block will cost R800 000 Green technology for heating and cooling will cost R1 000 000 The cost to service the site is R500 000 Professional fees (mainly the engineering fees) amount to 5 5 of total construction cost, including all finishes Legal fees will amount to R200 000 A survey of the area has revealed that commercial rentals amount to R135 m month gross and parking rentals Commercial Aboveground R300 month Underground R450 month Assume that the visitors bays are paid for by the tenants at the same rate Total operating costs for the office block amounts to R30 m month per gross lettable square metre Ratio of gross lettable area to gross building area is 85 There is obviously no land cost as your client owns the property, but the current value of the property would represent an opportunity cost to your client and should be used as the land costs when determining the feasibility of the new development Your client is not sure what to do and seeks your advice in this regard REQUIRED a) Calculate the value of your clients property as it currently stands (4 marks) b) If your client decides to re develop the property, calculate the first years development yield based upon the completed cost, including the opportunity cost of the land (25 marks) c) Assume that your client decides to re develop the property, calculate the value of the new development as if complete (4 marks) d) You are required to explain how you would approach the investigation of a site such as this and what factors need to be considered prior to this development proceeding (12 marks)

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A client of yours, Mr I.M Unsure, owns a property on Oxford Road in Rosebank. Your client used to live in the property. It was

A client of yours, Mr I.M Unsure, owns a property on Oxford Road in Rosebank. Your client used to live in the property. It was originally built as a house in 1962. During the late 1980s and early 1990s the Council started to allow properties on Oxford Road to be re-zoned and your client had the property re-zoned in 1992 as follows:

Use zone Business 1

Height zone Ho

Your client moved out of the property in 1993 and after renovating the property has been letting the property as a commercial property. A firm of architects, called New Design Architects, currently occupies the property. It is a big property with a land size of 4 000m and the building is 800m under roof. The gross lettable area (GLA) is 750m. The current lease is a triple net lease and your client receives R105/m/month net in rental. In terms of the current lease agreement, rentals escalate at 8% per annum compounded and current capitalisation rates in the area are around 9.5%. There is currently no mortgage registered over the property. Operating costs amount to R25/m per gross lettable square metre.

The CEO of New Design Architects, Mr John Tangent, has approached your client and presented your client with a proposal. John has suggested to Mr Unsure that he re-develop the property. John has recommended that the current structure be demolished and that a new office block be developed. The property will have to be re-zoned from Business 1 to Business 3.

John has indicated that New Design will undertake all the design work and project management, at no cost, but in return receive a 10% equity share in the property. New Design will also manage the property, once complete, at no cost, for their 10% equity share. Mr Unsure will have to fund the whole development.

John has presented your client with the following information:

Cost to demolish each the existing structure, including site clearance R350 000.
Re-zoning costs (town planners fees) R120 000.
Construction costs for A grade office space amounts to R8 500/m.
Landscaping costs amount to R400 000.
Paving will cost R600/m.
You must allow for 200m on site for the area to be landscaped. Any additional available area can be used for parking. This additional area is to be paved. The balance of the parking is to be provided underground. Underground parking costs R70 000 per bay. Allow for 30m/parking bay, both aboveground and underground. Round up or down the number of parking bays to the nearest unit.
Air conditioning for the office block will cost R800 000.
Green technology for heating and cooling will cost R1 000 000.
The cost to service the site is R500 000.
Professional fees (mainly the engineering fees) amount to 5.5% of total construction cost, including all finishes.
Legal fees will amount to R200 000.
A survey of the area has revealed that commercial rentals amount to R135/m/month gross and parking rentals:
Commercial: Aboveground: R300/month; Underground: R450/month. Assume that the visitors bays are paid for by the tenants at the same rate.
Total operating costs for the office block amounts to R30/m/month per gross lettable square metre.
Ratio of gross lettable area to gross building area is 85%.
There is obviously no land cost as your client owns the property, but the current value of the property would represent an opportunity cost to your client and should be used as the land costs when determining the feasibility of the new development.

Your client is not sure what to do and seeks your advice in this regard

REQUIRED

a) Calculate the value of your clients property as it currently stands. (4 marks)

b) If your client decides to re-develop the property, calculate the first years development yield based upon the completed cost, including the opportunity cost of the land. (25 marks)

c) Assume that your client decides to re-develop the property, calculate the value of the new development as if complete (4 marks)

d) You are required to explain how you would approach the investigation of a site such as this and what factors need to be considered prior to this development proceeding. (12 marks)