Commercial Real Estate

Investment project

Сommercial real estate

Consider the algorithm for the implementation of an investment construction project (commercial real estate) in the realities of the Turkish market using the example of a real object:

Initial data.

Apart-hotel for sale ready for operation

Location: Turkey, Alanya, Mahmutlar district, the central street of the neighborhood, opposite the city administration

Floors: 5 floors of 375 m2; 1st floor: reception, shops, 2nd-5th floors: 24 apartments, 6 per floor (1+1 and 2+1), there is an elevator, swimming pool, pool bar, basement, terrace with 100% view on the sea (used as a restaurant). Distance to the sea = 300 meters. Plot under the building: 10.4 acres. The total area of ​​the object: 1,375 sq. m. Building condition: normal, needs repair.

Object cost: 850 thousand euros

Market analysis: the cost of commercial real estate on the main street of Mahmutlar is from 1.5 thousand euros / sq. m (for 1st floors - from 2 thousand); residential - from 0.7-1 thousand euros / sq. m.

Options for implementing an investment project through investment in construction:

1. Demolition of the building and construction of the commercial real estate
2. Reconstruction of the building and sale of apartments
3. Demolition of the building, construction of a residential building, and sale of apartments

Priority: Option #1

Features of commercial real estate:

• potential profitability at the level of 70-100%
• PARADOX: investment in construction is lower than residential, and the sale price is higher!

Additional investment:

€350,000 (demolition + construction; depends on layout and choice of materials) + additional project costs

Additional costs for the project.

Purchase costs:

• 3% - agency commission
• 4% - registration of TAPU (of the declared value, can be underestimated) - 300 euros for cadastral fees + earthquake insurance (DASK)
• 0.5–1% - money transfer to Turkey
• 1% - notary costs (not required; from the declared value, you can underestimate)
• optional: notarized contract with the developer (up to 1%, but the legal force is the same as without a notary), lawyers, independent assessment (200 euros), company registration in Turkey
• 0.4% / year - commercial property tax
• Building permits, environmental impact assessment, transfer to non-residential fund, commissioning, new TAPU - 40-50 thousand euros.

TOTAL: additional costs will range from 80 (costs from undervaluation) to 130 thousand euros.

Total project costs: 1.28 - 1.33 million euros.

 

Implementation of option 1

Object area: 3 floors (1500 m2) + basement (400 m2) + terrace (500 m2)

Basement: 100 m2 with documents + 300 without documents*

1-3 floor: 2 vertical stores of 750 m2 (this is the best option because each store has its entrance and two floors)

Terrace: 100 m2 according to the documents + 400 m2 of an open terrace with a gorgeous sea view.

* - There is a legal limit in m2 for commercial real estate, so the basement and terrace are according to the documents as the official area (100 m2 each) + usable, and the area of ​​the 1st floor does not exceed 25% of the plot area (260 m2).

Target Buyers:

Basement: Turkish bath, bar

1-3 floor: furniture stores, banks, supermarkets

Terrace: restaurant, coffee shop

Profit

Sale of the object: 2.900.000 euros:

Basement: 100 m2 x 2000 euros = 200.000 euros (de facto for 400 m2)

1st floor : 500 m2 x 1800 euros = 900.000 euros

2-3 floor: 1000 m2 x 1500 euros = 1.500.000 euros

Terrace: 100 m2 x 3000 euros = 300.000 euros (de facto for 500 m2)

Selling costs:

10% real estate agency

2% front office (salary manager, brochures, our services)

taxes, 20% of fixed income (at a minimum, 10 thousand euros)

Net income from the sale of 2.542.000 euros

Profit from sale = 1.212.000 euros

Project profitability = 91.1%

 

ALTERNATIVE to sale – Rent:

200 - 250 thousand euros/year (including taxes 15-35% of the declared value)

Procedure (process diagram):

1. Registration of a company, registration of a transaction (+ TAPU), signing an agreement with the developer - 1 month
2. Project development in 3D by the developer - 1 month
3. Obtaining a building permit and new TAPU + start of sales - 1 month
4. Demolition of the building - 1 month
5. Construction of commercial real estate with finishing - 4 months
6. Sale of space - up to 4 months

TOTAL: 10-12 months.

Possible delays (steps 4-5):

• climatic conditions
• the holiday season (during it, you can only carry out fine interior finishing)
• Force Majeure

Option number 2. Reconstruction

It is possible to restore the premises and sell non-commercial areas on the 1st floor and apartments on the 2nd-5th floors.

The cost of repair work will be 150 thousand euros.

Additional costs - about 100 thousand euros.

Total: total investment = 1.1 million euros; revenue = 1.5 million. Profit = 400 tons. Euro.

Profitability = 36.3%.

The project implementation period is 8-12 months.

Rent as an alternative: 100 - 120 t. euro / year. Payback - 9-11 years (including taxes 15-35%)

Option number 3. Construction of an apartment building

You can demolish the hotel, invest in constructing an apartment building (1500 m2) and sell it by apartment.

The cost of construction and demolition will be 500 thousand euros. + add. fees (about 100 tons)

Total: total investment = 1.45 million euros; revenue = 2 million euros. Profit = 550 tons.

Profitability = 38%.

The project implementation period is 12-16 months.

Rent as an alternative: 150 t. euro/year. Payback - 10 years (including taxes 15-35%)

Considering minor differences in project implementation for options 1-3, option No. 1 (commercial real estate) is the most interesting.

 

It's worth noting that the higher profitability of the sale of a commercial real estate object (option 1 in this example) is not a general market rule. In each separately considered project, the reconstruction or construction of an apartment building may be more profitable. However, in this example, taking into account the geographical location that is most beneficial for doing business and permission to build only a low-rise building, the option with commercial real estate (office space) is optimal.