Assignment 4 The Mount Hope Project GETTING STARTED Setting: The year is 2017. Claire Clever is a young lady who graduated from UNC Charlottes Business School just three years ago with an MBA degree and secured a position with a large marketing company. Initially, she liked her job very much, but it began to bore her. She was unhappy with her boss, who was always refusing to listen to her creative ideas. While sitting at her desk one day, Claire daydreamed about a new, more interesting career. Two weeks later Claires mother called to say that her Uncle Larry Lewker, from Mount Hope, West Virginia, had passed away and that Claire had inherited most of his money. Claire couldnt believe that she was going to receive part of Lewkers inheritance. She barely knew her uncle. However, the inheritance came with a condition that she would have to use the money in order to invest in a project that would help the people of Mount Hope. Then, all the profits from the project would be Claires. If she did not accept the conditions of the inheritance, she would not receive any of the money. She decided to accept the terms, in honor of her uncles last wishes. Following her uncles funeral, held in Mount Hope, Claire decided to stay in town and determine what would be a beneficial project. In order to do so, Claire organized a public hearing in the town library to gather suggestions. As a result, Claire could clearly see that the vast majority of the citizens of Mount Hope desperately wanted a new shopping center. The town was lacking a modern facility that had ample parking and reflected the character of the town. Her head full of thoughts, Claire drove back to D.C. in order to quit her job. After emptying her apartment, she moved to Mount Hope to get started on her project. The idea of a medium-scale shopping mall with sufficient parking seemed to be very promising. The relevant question was: Would it also be a good investment? Claire needed experienced input about this project, as she lacked the necessary knowledge of the demand of the area and the economics behind the land development process. It was clear she needed a consultant. Claire remembered Heather, an old friend from high school, who was married to a land developer. She decided he was the right person to talk to. Bob Builders land development company, Big Builders, was not far away from Mount Hope. After having made an appointment with Bob on the phone, their conversation went like this: CMET 3224 Construction Project Administration Assignment 5 Page 3 of 6 Bob: Now, Claire, tell me more about your plans for that mall. Claire: Since your office is just an hour away from Mount Hope I was wondering if you ever heard about the demand for a shopping facility in that town. Bob: Let me tell you Claire, if I werent so wrapped up with projects here in town, I might have started a project like you have in mind. Yes indeed, there is a demand for a mall in or around Mount Hope. So Claire, what can I do for you? Claire: Well, I do understand that you are very busy, but do you think you could be a consultant to me about this mall? See, I have experience in managing and marketing, but, to be honest, I dont know much about land development and construction. Bob: My first advice to you is that you follow the three basic rules of land development: first, location; second, location; and third, location. Claire: I got it! Bob: Good, good. Well, since I have developed a few shopping centers, I actually can be of some help to you. Bob agreed to take over this consulting job after negotiating his fee. The new business partners set another appointment to talk about the project in further detail. This conversation went as follows: Bob: Since our last meeting, I dug out some old documentation on previous malls I developed. It is always important to produce good documentation. It can be very handy, when doing a similar project, as is the case now. It helps me to formulate a preliminary estimate and the estimate itself will assist us in the determination of the projects feasibility. Claire: But dont you need some more information to compare the new with the old projects? Bob: That is why you are here. I need to know from you what kind of mall you had in mind and what your financial situation looks like. Claire: I would like the shopping mall to be comprised of smaller retailers. A customer should have the impression that he or she is strolling down a town street with small and medium sized shops, of course all under one roof. It is also important that this place provides sufficient parking without offering the customer an unsightly view of a big parking lot. I want to provide attractive architecture and landscaping rather than just constructing a big ugly cubicle. Bob: It seems that you really trying to preserve the towns character. That is good. In terms of square feet, what size of floor space are we looking at? Claire: Oh, I havent really thought about that. How much will it be if, lets say, we have thirty smaller and fifteen bigger stores? Bob: (making some calculations on the corner of his newspaper) I would say we are looking at about 150,000 SF. That is a nice number to work with and shouldnt be too far outside the downtown area. Claire: Yes, and I have already looked around town for a piece of property. Well, I actually have a certain spot in mind, but I just dont know if we can build there. CMET 3224 Construction Project Administration Assignment 5 Page 4 of 6 Claire described the location of the land to Bob. The next day he found out that it really was an appropriate location, who the landowner was, and what the conditions and the zoning codes were. They agreed to meet again the next week. CMET 3224 Construction Project Administration Assignment 5 Page 5 of 6 Assignment 5 Imagine you work in the office of Big Builders and Bob asks you to work on the Mount Hope Project. Prepare a professional memo for him stating the costs for the items listed below as well as the total project cost for the shopping facility in Mount Hope in the correct year. Use the information provided in the text you have read before and the additional information given below. You know that Big Builders has developed an essentially similar shopping facility in Splash Springs in 2015. You obtained the companys records from Bob and found that the actual costs for this shopping center were: 1 Land $ 2,652,000 2 Site development $ 1,080,000 3 Utilities (Water and Sewer) $ 321,000 4 Electrical reticulation $ 68,000 5 Shopping facility (69,500 SF) $ 3,929,000 6 Parking lot (300 spaces) $ 489,000 7 Landscaping $ 70,000 8 Various Fees $ 1,119,000 Total project cost $ 9,728,000 The following construction cost indices were researched and will help determine the adjustment in price due to the difference in time and location of the two projects: Year Splash Springs Mount Hope 2015 0.95 0.83 2021 2.24 2.09 Consider the following facts: Claire was able to purchase the land for $ 2,945,000 Construction is expected to start in 2021 Assume a linear relationship of the costs based on the area of the floor plan. The site selected will allow for 600 parking spaces and the cost of the parking lot is proportional to the number of parking spaces. For the last half-year or so there has been an extreme shortage of companies specialized in installing electrical reticulations. Hence, it will be very difficult to find a subcontractor bidding a low price. Assume the unit cost of electrical reticulation in Mount Hope in the year 2021 will be 2.45 CMET 3224 Construction Project Administration Assignment 5 Page 6 of 6 times the unit cost of Splash Springs in 2015. In addition, you know that the costs for electrical reticulation are directly proportional to the floor space. Landscaping costs are about 15% of the parking lots construction cost due to Claires concern about the appearance of the shopping facility in the community. Claire received an estimate for site development, which stated: The site work should cost $2,135,000 at 2015 prices. The item "various fees" will be 20% of the construction cost. Your memo should include: A table of the itemized costs The Mt. Hope project total Any additional assumptions A paragraph that answers the following questions: o How accurate do you think your cost estimate is likely to be? o What additional information do you need to improve the accuracy of your estimate? o What information do you need if you are to give Claire an indication as to the feasibility of the venture from a technical and financial point of view? Attached to your memo: Calculations of the itemized costs