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Class project on developing a recommendation for an international real estate project: Palm Jumeirah in Dubai. Part of GSBGEN 306: Real Estate Investment - Stanford GSB
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G306.2 – Real Estate Investment (Abbey) G306.2 – Real Estate Investment (Abbey)
TRUNK OF THE PALM JUMEIRAH // LAND USE ANALYSIS
Stanford, CA – March 8th 2013
Erich Gunsenheimer, Jason Wong, JD Ridgeway
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
Investment Committee
Company Profile: EJJ Properties
» Based in Kuwait
» Market cap of USD$1.5B.
» Portfolio: Prime properties
across MENA region
Investment Objectives
» Obtain crown jewel property
– Long-term investment
horizon
– Equity build-up
– Hurdle rate of 20%
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
Market Overview
Population approx. 2M
Average income 76,000 AED (USD$20K). High-level expats 360,000 AED (USD$98K)
No Tax
Islamic Finance
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
Market Overview
Fall in rents after 2008 crisis
Currently world’s third strongest
performer
Residential: Rents unchanged over
the past 3 years
» Prices to rise 5-10% per annum.
Retail: 2.9M sq.m. in 2012
» Additional 375K sq.m. by 2015
» 8.3% growth CAGR
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
Neighborhood Assessment
o Near Large
Office area
o Easy access to
Retail shops
o Proximity of Schools
and Universities
o Major Landmarks
o Competing
Residential areas
Price – Apartment per Sqft
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
Crawler Methodology
Extracts data from Dubizzle.com
2,200 ads for rent and sale on the Palm
Jumeirah
Building name, Type, Size, No. of
Bedrooms, and Price
Database for approximate cap rates.
Built a precise prediction model for our
financial analysis
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
Lot/Property Assessment - Key Advantages & Issues
o Prestige of Landmark
o Last Pieces of Land on the
Trunk
o Ideal Traffic and Access Roads
for Long term
$110
$72
$90
$79
$110 $102
$90
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
Lot/Property Assessment - Key Advantages & Issues
o Prestige of Landmark
o Last Pieces of Land on the
Trunk
o Ideal Traffic and Access Roads
for Long term
o Stunning view on Dubai Marina
o Strong price growth $110
$72
$90
$79
$110 $102
$90
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
Lot/Property Assessment - Key Advantages & Issues
o Prestige of Landmark
o Last Pieces of Land on the
Trunk
o Ideal Traffic and Access Roads
for Long term
o Stunning view on Dubai Marina
o Strong price growth
o Expensive Location
o Expensive Construction
o High Maintenance Costs
o Many residential buildings
already
$110
$72
$90
$79
$110 $102
$90
68 75
52
92
Marina JBR JLT Palm
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
Construction & Use
Golden Mile
$300m
CC: $462/sqft
7 floors
Fairmont
$330m
10 floors
Shoreline
$150m
11 floors
Tiara
$408m
CC: $520/sqft
11 floors
Marina
$150m
17 foors
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
Construction & Use
Golden Mile
$300m
CC: $462/sqft
7 floors
Fairmont
$330m
10 floors
Shoreline
$150m
11 floors
Tiara
$408m
CC: $520/sqft
11 floors
Marina
$150m
17 foors
Hard Costs: $500/sqft
Soft Costs: $125/sqft
Plot Size: 305,704 sqft
Cost: $203 – 290m
Commercial/Office
Industrial
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
Multiple development options to consider for 300,000 square foot lot
1, 2 and 3 bedroom
apartments
Similar to other
developments on Palm
Jumeirah
Residential Mixed Use Retail Mall
Residential mixed with open-
air lifestyle retail
Novel format for Palm
Jumeirah Island as well as
Dubai in general
Regional fashion-oriented
shopping center
Complementary to the
Nakheel mall currently under
development
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
Key analysis assumptions
Residential Mixed Use Retail Mall
Construction
Timeframe (years) 1 2 3
Demand
Vacancy rate 15% 15% / 2% 2%
Rental rate (per square foot) $93 $93 / $118 $118
Rental growth 5% 5% / 5% 5%
Property value growth 6% 6% / 8% 8%
Entry cap rate 4% 4% / 4% 4%
Exit cap rate 5% 5% / 3% 3%
Financing
LTV 65.0% 65.0% 65.0%
Interest rate 7.0% 7.0% 7.0%
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
Development options were compared along several dimensions
($ in MM) Residential Mixed Use Retail Mall
Construction cost $203 $261 $290
Return on cost 14.5% 15.2% 12.7%
NOI (year 10) $54 $63 $49
Profit $532 $474 $631
Profit margin 261.7% 181.3% 217.2%
NPV (@ 20%) $184 $198 $133
IRR 40.0% 37.3% 29.7%
Debt coverage ratio 2.6x 2.7x 2.3x
Land residual $184 $198 $133
Recommended land purchase price $123 $119 $46
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
Recommendation
Initial bid of $80M with maximum negotiated price of $120M
Preferred development option is mixed use
» Highest ongoing value (highest NOI in year 10)
» Most value unlocked out of land
Steady draw for residents
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
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G306.2 – Real Estate Investment (Abbey)
Average Sale Price of Property in Dubai
Population Growth in Dubai
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