Question

A developer specializing in building and operating apartment buildings is currently pondering the latest news about the real estate activity in Montreal. He acquired land in the downtown core and is currently halfway through completion of constructing a high-rise tower; all but Fit Out and Commissioning is complete. The project was designed as an apartment building. Recent information is making him doubt his decision as he feels the returns on selling those units as condominiums may prove to be more profitable. Here is the information that he is working with: Land Cost: $12,000,000 Building Cost: $45,000,000 Total Project Cost: $57,000,000 Rental Apartments: 12 per floor, 30 floors. Average Rent: $1,200/Apartment/Month Average Size of the Rental Apartments: 700 sq.ft. Operating Cost: $700/Apartment/Year Vacancy Rates for Apartment Buildings in Montreal: 15% He expects to reach stabilization* in 6 months after completion to take out his construction loan at a 5% Cap and 80% LTV. If he was to convert his project to a condominium project, he anticipates the following: Change of Scope: $3,000,000 (this includes Legal Fees, Fit Out and Marketing) Average Selling Price: $450/sq.ft. Market Data indicates that he will sell 85% of his project within six months of releasing it to the market. He has already spent $15,000,000 and the bank is willing to lend him up to 75% of the project cost. If there are no cost overruns, the conversion may be possible, but will it be feasible/more profitable? (Hint: What is his equity and profit in both cases?). *Stabilization: Typical occupancy in the market.

Answer 1

Land cost	12000000
BLdg cost	45000000
To. Cost incurred	57000000
when the property gives on rent
Rental income	432000	per month	5184000	per year
To. Apartments	12 per floor
	360
Rent per apartment	1200	per month
operating cost			252000	per year
therefore income			4932000
less:- vacancy(15%)			739800
			4192200
when property is sold
selling price	113400000
less:- interest	21375000	(57000000*75%*6/12)
less:- cost incurred	15000000
	77025000 here we found that there is more profit in selling property