Palm Jumeirah - Real Estate Final Project

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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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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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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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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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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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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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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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Trunk


for Long term

o Stunning view on Dubai Marina

o Strong price growth $110

$72

$90

$79

$110 $102

$90

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Trunk


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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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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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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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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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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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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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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Average Sale Price of Property in Dubai

Population Growth in Dubai

Business

Palm Jumeirah - Real Estate Final Project