Feasibility Study on EDSA, Loreto Street, Caloocan City Property

Bachelor of Science in Real Estate Management

De La Salle-College of Saint Benilde Manila, Philippines

In Fulfillment of the Requirements of REFINAN

Submitted by: Jedric Jenssen C. Chu

Submitted to: Sir James Charles T. Que

Date: May 13, 2020

Introduction

• The property in this study is owned by Worldstar Vision Development Corporation. The
company is a real estate corporation established in 1995. Its primary business is
acquiring properties and leasing them out for commercial or residential use. Later last
year, it acquired a 568 sq.m. property, located along EDSA, going to Monumento in
Caloocan City. There used to be an old structure and was eventually demolished as
shown in the pictures below, marked in yellow and green, respectively. This study will
help determine if it is feasible to lease out the property with improvements.
 The pictures below are where I got the reference for the feasibility study, it is also
located in Caloocan City.

 It is a 600 sq.m. property located at Dagohoy Street, near the Monumento Circle. The
rental cost is P120,000/month.
 Chapter 1: Background of the project

Demographics

 The overall population in Caloocan City in 2015 census is 1,583,978.

 The population in South Caloocan, where the property is located, is 585,091.

Category in terms of:

Income:

 The average household income in Caloocan City in 2012 census is P31,583.

Number of households:

 There are 90,707 households in South Caloocan.

Age

 The figures below show that majority of the people living in Caloocan City have a young
population.
Marital

 The figure below shows that the marital status of the people in Caloocan City are mostly
either single or married.
Lifestyles

 The usual lifestyles of the residents in the area are shopping in the malls or in markets,
eating out in the restaurants, and hanging out in the bars.

Employment

 The figure below shows that how many people are employed in and what are their roles
in employment.

Trading

 16,569 (26%) are retailers, wholesalers

Services

 37,147 (57%) are contractors, real estate agents, and financial institutors

Manufacturing

 11,206 (17%) are manufacturers

Tourism

 There are not much any tourist spots in Caloocan City. The nearest landmark from the
property is the Monumento Circle. Tourism is negligible in some old churches like San
Roque Church and a Taoist temple.
Land Use

 South Caloocan, where the property is located has seen rapid growth in the past 10
years. Commercial areas are mostly small and large retail store, supermarket, service
shops, wet and dry market, food service outlets. Major roads are EDSA, Rizal Avenue
Extension, Mabini Street, C3 Road 5 th Avenue, 10th Avenue, Samson Road, Baesa
Road.
 Minimize exposures of residential community from threats of natural hazard like
earthquakes, flooding, and tsunamis.
 The Caloocan City Comprehensive Land Use Plan (CLUP) is based on a long-term
development goal and objections. Its goal is to be a risk-resilient, sustainable, and
economically viable plan that would extend in a 10-year horizon. It considered the
transport network, economic development, ecologically critical area, and natural hazard.

 The photos below show where the property is located on map and in satellite, marked in
red and yellow, respectively.
Traffic

 The traffic in EDSA is usually moderate to heavy due to being one of the major
thoroughfares here in Metro Manila. Transportation is accessible through jeepneys,
taxis, buses and LRT1. It is pedestrian-friendly because there are lot of footbridges
being provided to able to cross on the other side of EDSA. But people still need to be
careful and be aware of the surroundings due to moderate to high crime rate in the city.

 The graph below shows what type of vehicles dominate EDSA and how many does it
pass through EDSA. It shows that cars mostly dominate EDSA each day, followed my
motorcycles and other vehicles.
Regulatory Environment

 Regulatory and zoning ordinances are in effect, but subject to review to maintain.

Chapter 2: Economic and Market Conditions

State of the Local Economy

 Market in the area is mostly composed of Class BC to Class B market. Local economy is
increasing at a low but steady rate of 0.3%.

Ongoing situation effect on real estate markets

  The ongoing construction of the SM Grand Central will increase economic activity in the
Monumento Area. It will become a new commercial hub given that it is connected to
LRT1 Monumento station, Similar to North EDSA / Trinoma station of MRT.
 It will clean up and beautify the surroundings and may relocate the illegal vendors and
settlers surrounding the project.
 There are also some multi-leveled commercial buildings along MacArthur Highway,
which is only a few meters from Monumento Circle.
 Also, another new mall is being built along EDSA northbound, also a few meters from
the Monumento Circle, which is less than half kilometers from the proposal lot.

Office

 The most common type of this property might be the banks scattered along the major
roads in the city.

Commercial / Retail

 This made up majority of the establishments in Caloocan City, they are the big and small
retail stores and the industrial parts suppliers, potential for new business and the fast
food chains. Since there are only a few restaurants now. It is a big potential to expand or
open branches in the area. Rental rate is around 500 to 600 sq.m./month.

Residential

 Since land is already heavily built-up, the option is to redevelop into multi storeys
residences. Rental of houses are around P200-250 /sq.m./month.

Hotels

 There are currently no new or major hotel projects as of this time.

Lending Environment
 Interest rates for prime customers are ranging from 3 to 3.5% at the moment for property
companies.

Chapter 3: Site Selection

 The property is facing EDSA, Caloocan City, one of the busiest thoroughfares here in
Metro Manila. Behind the property is Loreto St. It is located very near MCU (Manila
Central University), and its hospital. Nearby fast food chains are KFC, Mang Inasal,
Greenwich, Jollibee, 7-Eleven, and other small restaurants and coffee shops nearby.

 Due to the lack of restaurants in the area, this is the opportunity to build one, so that
people will not have to travel far or commute when going to a restaurant to eat.

 There was no maximum limit on Floor Area Ratio (FAR) along EDSA due to it being a
major thoroughfare.

 The property was acquired in February 2019 from the previous owner. The acquisition
was partially settled through bank finance. The property was offered to the company by
a longtime agent-friend. After a few meetings with the previous owners, the deal was
closed. The property originally had a two-storey structure with several residential tenants
occupying the 2nd floor and commercial spaces on ground floor. The tenants were given
a certain rent-free period to vacate their place. The tenants were given the first option to
buy the property.

 The due diligences that were made during the acquisition were the authenticity of the
Transfer Certificate of Title (TCT), the validity of the owners’ identity.

 The pictures below are the restaurants and convenience stores near to the property.
 .

Chapter 4: Technical & Scheduling Feasibility

Development Team

 The development team will consist of 15-20 members which includes building contractor,
project manager, structural architect, structural engineer, electrical engineer, and fire
engineer.
Site Planning

 The picture below shows what the structure would look like in top view.

Building Design

 The building codes that should be complied are the seismic code and the fire code
because these are also one of the requirements when building a structure.

a. Aesthetic Requirements
 The building will have a modern design, the materials to be used are glass pane facade
and modern steel railings.
 b. Seismic Requirements
 Complying with the National Building Code of the Philippines 2005 under Presidential
Decree 1096 and the National Structural Code of the Philippines 2010, the building must
be able to withstand magnitude 8-9 on the Richter’s Scale.

c. Flood Risk
 There is currently no history of flooding in the site.

d. Sustainability
 Leadership in Energy and Environmental Design (LEED) is a certification program that
helps determine if the building is environmental-friendly and is compliant to the
environment. In order for a building to be qualified for LEED, it must comply with the
environmental laws and regulations.

Proposed Design

Option A
Option B

Construction Budget

Category Cost
 General Requirements P1,298,000
Structural Works P10,934,000
Architectural Works P5,170,000
Plumbing Works P583,000
Electrical Works P1,507,000
Parking Pavement P1,000,000
Total P20,492,000

General Requirements

 Includes mobilization, temporary facilities, permits

Structural Works

 Includes form works, concrete works, reinforcements, roofing, masonry

Architectural Works

 Windows, floor, railings, ceilings, wall and floor finishes, painting works

Preliminary Construction Schedule

Chapter 5: Financial Feasibility

Real Estate Investment Profit

Current market price of the property: P180,000/sq.m.

 Acquisition Cost: -P145,000/sq.m.

=P35,000/sq.m. x 568 sq.m.

Increase in Property Value: P19,880,000

Gross Potential Income/Vacancy & Credit Loss/Net Operating Income

Rentable Area 870 sq.m. x 750/sq.m. per month = P652,500/month x 12 months =

P7,830,000

Air Space Rental (billboard) P120,000/month x 12 months =

P1,440,000

Gross Potential Income P9,270,000

Less: Vacancy and Credit Loss (10% provision): P927,000

Gross Operating Income P8,343,000

Less: Operating Expenses

Taxes P150,000

Utilities P120,000

Salaries P400,000

Interests P2,000,000

Security P420,000

Depreciation P1,000,000

Maintenance P300,000 P4,390,000

Net Operating Income P3,953,000

Break Even Ratio

Debt Service + Annual Operating Expense* P3,390,000

Gross Operating Income P8,343,000

 Break Even Ratio = 0.4063 or 40.63%

* Depreciation is not included

Gross Rent Multiplier

Market Value P180,000 x 568 sq.m.

Annual Gross Income P8,343,000

Gross Rent Multiplier = 12.25

Loan to Value Ratio

Mortgage Amount P50,000,000

Appraised value of the property P185,000 x 568 sq.m.

Loan to Value Ratio = 0.48 or 48%

Capitalization Rate

Annual rate operating value P5,353,000

Cost (or value) P145,000 x 568 sq.m.

Capitalization rate = 0.065 or 6.5%

5-year financial forecasts

 1. Gross Potential Income is projected to have 3% increase annually.
2. Depreciation is included in expenses for tax purposes only; no actual cash out.
3. 30% tax rate

1. Depreciation is added to cash flow because it has no actual cash out, it is included in expenses for tax purposes only.
2. Cash from stockholders
3. Cost of the land
4. Partial payment of mortgage loan
5. Cost of the building

Net Present Value

  Calculating the five-year financial forecasts beyond 2025 and the net present value, it
will take 11 years to fully pay the mortgage loan and start to have ROI.

Chapter 6: Recommendations and Exit Strategies

Option A

Hold on to the project and collect income

 To build a two-storey commercial building to lease out to a restaurant, fast food chain, or
several commercial units.
 This feasibility showed that this option will take about 11 years to reach the return on
investment (ROI).
 This option can have additional income because of billboard advertising.

Option B

Sell the property including the building

 Sell the property with the building to an investor when the market value has appreciated
enough. The remaining lease period will be marketed as “income-generating” investment
property.

Option C
Lease out the property without any improvements

 If almost the same ROI as in Option A can be reached, this option can be considered.
The property can be leased immediately and without any hassles. ROI may be longer by
a few years, but the money allocated for the improvement can be invested in another
property.

References:

• https://www.google.com/maps/@14.6573497,120.9887374,3a,75y,1.9h,86.31t/data=!
3m7!1e1!3m5!1suFc9aYzc3G1JlWFOg4P98Q!2e0!5s20180401T000000!7i13312!
8i6656

• https://www.google.com/maps/@14.6573538,120.9887533,3a,75y,1.9h,86.31t/data=!
3m7!1e1!3m5!1s3Ejjf7kS0wzYjhf279XaHg!2e0!5s20191101T000000!7i13312!8i6656

• https://www.lamudi.com.ph/600-sqm-commercial-lot-for-rent-beside-monumento-
circle.html

• https://en.wikipedia.org/wiki/Caloocan

• http://www.caloocancity.gov.ph/images/2019-09-12/2017-2025-Local-Shelter-Plan-
Final.pdf

• https://www.google.com/maps/place/Epifanio+de+los+Santos+Ave,
+Metro+Manila/@14.6573954,120.9886916,19z/data=!4m5!3m4!
1s0x3397c9da821341b9:0x446ff353334ba713!8m2!3d14.6574864!4d121.0158843

• https://www.google.com/maps/place/Epifanio+de+los+Santos+Ave,
+Metro+Manila/@14.657494,120.9886608,104m/data=!3m1!1e3!4m5!3m4!
1s0x3397c9da821341b9:0x446ff353334ba713!8m2!3d14.6574864!4d121.0158843

• https://www.bworldonline.com/how-many-vehicles-pass-through-edsa-each-day/
• https://www.google.com/maps/@14.6573667,120.987968,3a,75y,342.01h,91.98t/data=!
3m6!1e1!3m4!1sgCBdk_GwpBzwVWyBqAEGhQ!2e0!7i13312!8i6656

• https://www.google.com/maps/@14.6573604,120.9876079,3a,75y,343.62h,91.96t/data=
!3m6!1e1!3m4!1s8-rauhlEz5PK9YGkuKCN-w!2e0!7i13312!8i6656

• https://asgamboa-associates.com/wp-
content/uploads/2016/12/539246_407237266001256_1192945190_n.jpg