Hollywood Real Estate Development Recommendation
Subject: Hollywood Real Estate Development Recommendation I recommend that we invest in the project at Hollywood and Highland over the project at Sunset and Vine. The Hollywood and Highland project meets all five underwriting requirements for investment criteria, whereas the Sunset and Vine project does not have the same community support and as a result could encounter complications that could delay construction. Furthermore, the Hollywood and Highland project yields a five-year internal rate of return of 47%, and the Sunset and Vine project will only yield 26%. If we follow our typical exit strategy and sell after three years, the internal rates of return increase to 69% and 36%, respectively. According to the Boston Consulting Group, there is an unmet retail demand in inner cities of approximately 25%, and I believe that those figures can be as high as 40% in certain markets. To accompany that, it is well documented that retail sales per square foot are substantially higher in inner cities. As an example, a typical Home Depot sees sales of about $400 per square foot. The Home Depot in Queens, NY reports sales of nearly $1,500 per square foot. The Hollywood and Highland project will better take advantage of this, as it provides 640,000 square feet of retail space compared to Sunset and Vine’s 87,000. One advantage to the Sunset and Vine project is that anchor retailers Bed, Bath, and Beyond and Borders have signed lease agreements. The remaining 270,000 square feet at Sunset and Vine will be reserved for 300 rental units. As a result, we can expect that the Hollywood and Highland project will create far more jobs for local residents, both entry level and moderately skilled. Furthermore, the income per square foot is greater at Hollywood and Highland when compared to Sunset and Vine. The retail space in the Hollywood and Highland project is projected to yield a net income of $36, whereas Sunset and Vine’s combined