EUCALYPTUS SAND HILL HOTEL AND OFFICE DEVELOPMENT PROJECT Case Solution & Answer

EUCALYPTUS SAND HILL HOTEL AND OFFICE DEVELOPMENT PROJECT Case Solution

1. A typical ratio of land as a percent of value is 25 percent. Birdwell needed to understand the land value for 2825 Sand Hill Road. Specifically, what is the residual land value under the 300-room and 120-room hotel scenarios and the 60,000 and 120,000 square foot office buildings? Complete Exhibit 7

The common technique for valuation is the residual value, which as far as property development calculates, the valuable person might be set up to pay for a plot of development land for example. The remaining worth is frequently helpful in identifying whether a benefit can be accomplished on the development of the land. At its most essential, the residual value equation is given as below:

The value of the whole project less aggregate improvement costs = value of the property in its current condition.

To pick up a more precise residual value, it is important to incorporate expected depreciation or appreciation in the cost of the advancement once less aggregate improvement costs.For example, financing and interest costs, taxes and even the developerâ€™s overall revenue, which would consider the genuine lingering estimation of a site to be developed.

 60k sf of office 120k sf of office 120 room hotel 300 room hotel 60k sf of office + 120 room hotel(1 120k sf of office + 120 room hotel(1 Stabilized NOI \$4,140 \$8,280 \$5,371 \$11,028 \$9,577 \$13,651 Cap Rate 6.50% 6.50% 7.00% 7.50% 6.82% 6.70% Total Value \$63,692 \$127,385 \$76,729 \$147,040 \$140,421 \$204,113 Land Ratio (25%) \$15,923 \$31,846 \$19,182 \$36,760 \$35,105 \$51,028 Residual Land Value \$3,105 \$6,210 \$4,028. \$8,271 \$7,182 \$10,256 Projected Profit \$60,580 \$121,175 \$72,700 \$138,76 \$133,238 \$193,856

The table above shows the residual land value of different accommodation of rooms and office spaces. The residual value is calculated as the total value less capacity of land divided by capitalization ratio.

In order to identify the land value for 2825 Sand Hill Road especially for 60,000 office with 120 room accommodation and 120,000 offices with 120 room hotels, the highest profit is viewed in the 120,000 offices with 120 hotel room accommodation, which is 193,856 and third highest profit in the 60,000 of offices with 120 hotel rooms accommodation, which would result in 133,238.

1. What development program would you recommend to Phillips? Is there sufficient profit and land value to proceed?

It is recommended that Phillips should go for the land value 2825 of 120 sq. foot for office building with 120 room hotel scenario, as it would result in highest profit and would increase landâ€™s value even after using the capitalization rate.

It would result in sufficient profit and value to the land as well as it would provide the construction of 21.4 acre land for academic and support facilities. Moreover, it would provide the athletics and cultural facilities. Along with this, it would create the new land use designation for faculty residential area.

It focuses on the advancement for the following 10 years into the center grounds range inside the Academic Growth Boundary. No development is required for outside the limit, which generally incorporates Stanford lands lying between Sand Hill Road, El Camino Real, Stanford Avenue and Junipero Serra Boulevard, as well as it incorporates some officially developed ranges with existing homes, the fairway and the territory close to the Center for Advanced Study in the Behavioral Sciences. Just like an Urban Growth Boundary, the Academic Growth Boundary would be at first investigated five years after appropriation and afterward it would beliable to a far reaching survey 10 years after selection for conceivable modification.

1. What is the luxury hotelâ€™s operating leverage? What is the impact on equity cash flow in year four of a 10 percent increase in revenue? A 10% decrease? Use this simplified summary from Exhibit6.

First of all,the degree of operating leverage is calculated as the change in percentage in EBIT divided by the change in percentage in sales because it shows the change of income from increase or decrease in sales. Therefore, it would result in operating leverage of 1.56% if there is 10% increase in sales.

Net operating income is the income remaining after fixed cost installments are made by the company, regardless of the sales. In an event that the DOL of an organization is high, this implies that generally small increase in sales would have large impact on the net income or EBIT.Â  Along with this, the calculation of operating leverage can help in basic leadership or in decision making, which may avoid huge misfortunes to an organization in light of smaller changes in sales……………….

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