Shopping Center Case

 As with most problems of this type, your answer will depend heavily upon the assumptions you make.  Even within the context of the problem, you may need to make additional assumptions.  Part of the evaluation will depend upon how your ability to state assumptions and support them.

Consider the map.

 Shopping center A is 300,000 sq. ft.

The distance between A and X = 2 miles and the distance between A and Y is 2 miles

A proposed center at p is planned to be 250,000 sq. ft.

The distance between p and X = 1 mile and the distance between Y is 2 miles.

Relevant expenditures in area Y= $60,000,000.

Relevant expenditures in X= $25,000,000.

You may wish to draw a map showing the first 6 facts.   

Use the Huff model with a distance discount (exponent on distance variable) of 2 to estimate sales.

Total expenditures at p will equal p=s capture from the two markets plus 10% from other sources.

Sales per sq ft. in the area average $200/sq/ft/yr. To justify the prevailing rent for commercial

space is estimated to be $25 per sq ft/yr will be needed when the project opens.

Costs of construction are $100 per sq. foot. This includes the cost of common space.

The land cost is $700,000.

The first year there will be no income but the entire cost of construction will be spent at the start of the year.

In the second year, 2 of the space will be leased. Occupancy will be .95 thereafter.

Operating expenses including expenses for major rehabs is 45% of gross revenue

Assume a 3% inflation rate.

Assume a market determined discount rate of 15%. This includes a pure interest factor, an inflation factor, as well as a risk premium and capital recapture.

After 30 years the value of the value of the land will be worth $10,000,000.

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Perform a market and feasibility study.

Which assumptions seen the most difficult to know? Is the model sensitive to those variables?

Do you think the land is fairly priced ?