Cherry Creek LLC Feasibility Study

Executive Summary 

The Cherry Creek project is a residential construction project that will incorporate 22 acres of land holding multiple complexes which will amount to a total of 80 units. This construction project will be undertaken in the Naples, Florida area and is projected to be duly completed in less than two years. The subsequent details are the first draft to the feasibility of this particular project and how financially implicating the resident complex would be in its 2 years of construction period. There are many aspects which are still yet to be completed for the Cherry creek projects such as: 

Financial Considerations 

Risk analysis 

Constructability analysis 

Architectural limitations and specification 

This study will highlight these same issues and will provide the first draft on how to tackle the above demands when constructing the Cherry Creek project. It is important to note that the Cherry creek project is effectively bank rolled by the latter LLC itself and eighty percent of the entire budget comes from the investment of the company. The other twenty percent are predominantly from early sale customers and equity holders that may have a stake in the completion of this complex. 

Financial Considerations 

According to Barkhan, Bokhari and Saiz in their research paper ‘Urban Big Data: City Management and Real Estate Markets’ financial considerations, especially in urban settings require a tabulated breakdown of the main areas that might constitute an escalated budgetary avenue (Barkhan et al, 2018). For this reason we will breakdown all the long term / short term expenses of the project in question. Please note that these values are estimates and may be subject to inflation and or the rise and fall of forex market plus other underlying financially related aspects: 

Risk Analysis 

According to Chen & Khumpaisal risk assessment for real estate development heavily relies on a liquid equity and the credit limit a company has on its finances. In their paper ‘An analytic network process for risk assessment in commercial real estate development’ they particularly argued that risk becomes inherently overwhelming if the cost of the construction project is more than the liquid equity an investment company might have (Chen & Khumpaisal, 2009). 

In the case of Cherry Creek, the overall budget for the two years the residential complex will carry on; total expenditure would be more than thirty million dollars. This expenditure includes the cost of the land, the annual staffing costs that may increase due to the project requiring administration, marketing, sales and consultancy services down the line. It also is very important to note that short term financing of Cherry Creek is 30 million along a 30 million debt credit line using long term and short term repayment plans by JP Morgan. 

The above stipulation categorically ensures that the project will not run out of monetary funds for its completion however it increases the overall risk of the investment at hand. 30 million net would be utilized in core construction costs however any pending expenditures would need to be covered using the credit line which have to be later repaid in interest since it will be part of the overall debt for the investors. 

Since the income statement has not be made public by the Cherry Creek, it is difficult to evaluate the overall risk however had we known the numbers, total valuation and risk could be calculated using the following notation: 

This valuation formula was empirically ascertained from professor Deng’s ‘Real Estate Risk, Corporate Investment and Financing Choice’ from The Journal of Real Estate Finance and Economics (Deng et al, 2018). 

Constructability & Architectural Limitations 

There are many architectural limitations to the development of the Cherry Creek project, foremost of these are based on the land that was purchases from WCI Communities before they went completely bankrupt. 

Initially, the land has to be filled in order to balance and level the site and this operation would be conducted once the grub operations are complete. Naturally the site is twenty feet above sea level which makes it almost four feet above the neighbouring sites in Naples, however the site being higher from sea level means that more money would need to be spent on infrastructure as piping and the laying of artificial drainage and waste management once the community is up and running (Massimo et al, 2018). 

As the complex would hold luxury and residential apartments, the maintenance of such should be easier as compared to initial construction therefore with regards to having residents the overall valuation would not deflate as higher income groups would be residing in this gated community. Furthermore, drainage for storm water and other naturally occurring phenomenon such as thunderstorms etc would be dealt with since the site has developed a natural drainage system that flows into the creek making it almost impossible for any chance of conventional flooding. 

The constructability would be easier as the land would be softer due to vegetation surrounding the site and constructing eighty units by any contractor should necessarily be a straight forward project. As the overall time is two years more emphasis should be given on the acquisition of raw materials rather than constructability as overall risk for the project is based on monetary credit terms rather than the operational procedure of the site in question. 

References 

Chen, Z., & Khumpaisal, S. (2009). An analytic network process for risks assessment in commercial real estate development. Journal of Property Investment & Finance, 27(3), 238-258. 

Deng, X., Ong, S. E., & Qian, M. (2018). Real Estate Risk, Corporate Investment and Financing Choice. The Journal of Real Estate Finance and Economics, 57(1), 87-113. 

Barkham, R., Bokhari, S., & Saiz, A. (2018). Urban Big Data: City Management and Real Estate Markets. GovLab Digest: New York, NY, USA. 

Massimo, D. E., Del Giudice, V., De Paola, P., Forte, F., Musolino, M., & Malerba, A. (2018, May). Geographically weighted regression for the post carbon city and real estate market analysis: a case study. In International Symposium on New Metropolitan Perspectives (pp. 142-149). Springer, Cham.