Cricket Road

644 Words Sep 25th, 2010 3 Pages
Executive Summary
In September 2003, Mason Sexton, a young, inexperienced developer, was making plans to replace a rooming house he had inherited next to the University of Virginia campus in Charlottesville with a new 14-unit, 5-story apartment house. In his attempts to assemble the information, approvals, and resources necessary to go ahead, he runs into many problems associated with the development process. While Sexton is able to carry out most of the conceptual, investigative and planning stages of this development, he runs into many problems because of his inexperience and his initial plan changes over time. He runs into issues obtain financing, has to spend money to obtain a certificate of occupancy, underestimates the
…show more content…
Since remodeling the house, Sexton has been operating the property at a profit, with income from operations currently at $15,000. If we based the sales price on current net operating income and an 8.25% capitalization rate, Sexton should be able to sell the property for about $182,000. Exhibit 1 provides a sales price range between 162,000 and $207,000 based on a range of cap rates.
• Option 2 (Proceed with Mid-Rise Apartment Complex, Selling in Year 10): While replacing the current structure with a more appealing mid-rise apartment complex would increase the market value of the property, it would also require financing and additional investments. Thus far, Sexton has run into several problems, beginning with the planning commission, and now higher cost estimates, financing and timing issues. Even if Sexton were to obtain financing and somehow meet the January 2005 target date, his original estimates of rental income and cash flow analysis are still not guaranteed. Exhibit 2 provides a net present value range between 103,000 and $214,000 for proceeding with the mid-rise apartment complex and selling in year 10 based on a range of cap rates.
• Option 3 (Keep Existing Rental House, Selling in Year 10): The existing structure is very old and deteriorating. Sexton expects maintenance costs to increase even more. As a result, I would not advise
Open Document