N.anh lim tower

Course: Urban Planning and Real Estate Markets Lecturer: Prof. Karl Kluegel Student Name: Nguyen Ngoc Anh Student Number: 2010-UDP-M-02

CLASS ASSIGNMENT

Individual Essay: Real Estate Market and Developments

Due date: August 30, 2011

LIM TOWER 9-11 Ton Duc Thang

District 1

Ho Chi Minh City

Nguyen Ngoc Anh – LIM TOWER – 1 | 16

Table of Contents I. INTRODUCTION ................................................................................................................... 3

II. BUILDING OVERVIEW/DESCRIPTION ................................................................................ 3

III. METHOD OF EVALUATION .............................................................................................. 4

IV. EVALUATION .................................................................................................................... 5

1. Design ................................................................................................................................ 5

2. Parking Capacity ................................................................................................................ 6

3. Traffic ................................................................................................................................. 7

4. Market Analysis .................................................................................................................. 8

5. Economic Analysis ............................................................................................................. 9

6. Social Impact .................................................................................................................... 14

7. Environmental friendly ...................................................................................................... 14

V. CONCLUSION ..................................................................................................................... 15

REFERENCES ........................................................................................................................... 16


I. INTRODUCTION This paper is an individual part of the UDP2010-2012 class assignment. The objectives of the

class assignment are to analyze the impacts of a number of real estate projects on District 1

and on HCMC as a whole. To begin with, fifteen (15) projects are selected from the pending

project building presented in Vietnam Real Estate Update and Market Overview; Indigestion in

the Property Market by Townsend, M (2011). To the extent of this paper, the evaluation of the

LIM TOWER will be presented.

II. BUILDING OVERVIEW The LIM TOWER is located at 9-11 Ton Duc Thang Street, at the conjunction of Ton Duc Thang

St, Nguyenn Huu Canh St, and Le Thanh Ton St, District 1, Ho Chi Minh City. The investment

capital is 37 million USD, and the developer is Mai Thanh Limited Company. The Tower will has

02 basements, 34 storey, with total building floor area is 33.300 m2, functioning as serviced

office building. It is estimated that The LIM TOWER project will completed in 24 months by

Quarter IV 2012.

Figure 1: Location map of the LIM TOWER

Summary information about the project is provided below:

- Investment Capital: 37 million US$

- Design: CASA Vietnam LTD.

- Management: APAVE Vietnam & ASIAN

- Constructor: COTECCONS Group

- Monitor: COTEBA (France)


III. METHOD OF EVALUATION A set of criteria was discussed and finalized in class, when all 15 members agreed on the

relevance and effectiveness of these criteria. Moreover, the availability of information also affect

the selection of criteria for analysis. Seven (7) criteria were selected, showed in Table 1.

Methodologies to assess the LIM TOWER with the selected criteria are flexible for each

criterion. Literature reviews, current market reviews for critical comments is mostly used for all

criteria. Field observation is also applied for criteria: Design, Traffic, and Social Impact. For

criteria Parking capacity and economic analysis, the paper uses some technical calculation for

assessment.

Table 1: List of criteria No. Criteria Notes on method Applied Ranking

Good Bad 1 Design & image Social harmony

Social status 1 2 3 4 5

2 Parking capacity Calculation: Motorbikes Cars

1 2 3 4 5

3 Traffic Accessibility Mobility

1 2 3 4 5

4 Market analysis Rental rate, occupancy rate forecast

1 2 3 4 5

5 Economic analysis Calculation ROR, ROI, IRR

1 2 3 4 5

6 Social impact At 500m radius 1 2 3 4 5

7 Environmental friendly Presence or not any environmental standards

1 2 3 4 5

Each criterion, after being analyzed, is then given a ranking score, based on ranking of 5. This

will be one section of the general assessment of combined 15 projects.


IV. EVALUATION

Table 2: General information1

Items Value

Land area 1,917 m2

Plot ratio 16 GFA 33,300 m2 Parking - base 3,044 m2 Parking- upper 3,300 m2 Leasable GFA 30,000 m2 Office-1 17,000 m2– secured leased by Techcombank Office -2 13,000 m2– open to market Total development cost (including land cost)

37,000,000 m2

Owner Equity 11,100,000 Million US$ Bank loan 25,900,000 Million US$ Interest rate per annum (2011) 20%

1. Design & Image The fist assessment is social harmony, including

harmony with close environment, culture

representation, and general likeliness. The LIM

TOWER is located in the boundary of the CBD of Ho

Chi Minh Center. With the height of 126m and glassy

design, it is a very typical office building. Together

with a number of other high buildings in the area, the

LIM TOWER contributes to the business and finance

cultural representation.

However, there have been many critiques about the

emergence of many office buildings in Ho Chi Minh

City to the landscape and urban planning of the city.

Some architectural analysts expressed that these

buildings now constitute to the “cloning urban” (Binh,

1 Official letter No. 1893/SQHKT-QHKTT. Department of Planning and Architecture. July 15, 2010.


2011). The Vietnamese characters are losing, when replacing by new skyscrapers. Architect

Chung (2011) criticized that rapid urbanization and no-clear-plan for high building, skyscrapers

has destroyed the architectural landscape of Ho Chi Minh City, which are critically valuable.

Finally, I believe that the LIM TOWER itself is not the only one building to blame, but together

nearby skyscrapers are responsible to break down the landscape harmony and historical value

of the area including the Ba Son Port, Bach Dang Quay, and the riversides.

Score: 4

2. Parking Capacity According to the building design, LIM TOWER will have two basements for car parking and four

storey for motorbike parking. Moreover, the construction of car parking will have technology for

two layers for each basement. The total area available for parking is summarized in table 3.

Table 3: Parking capacity at LIM TOWER

Type Number of storey

Area Capacity (Car equivalent)

Car parking 2 6,088 m2 195

Motorbike parking 4 3,300 m2 128

Total 365

According to the TCVN 276:2003, Office Building-Design Standard2 requires 300 car parking

plots for 30,000m2 office floor area. For that calculation, the LIM TOWER will provide efficient

parking area, for both the use of the building and surrounding area.

In 2011, it is reported that in HCMC there are approximately 500,000 cars (30% of total in

Vietnam) and 4.5 million motorbikes (15% of total in Vietnam). Furthermore, there are about

60,000 cars and 1 million motorbikes form other provinces travelling in HCMC. The need for

parking is essential important, and the construction of new buildings can contribute to the

parking area, while the existing area for parking can supply only 0.6% of the demand (Dung,

2011). Therefore, the LIM TOWER is one of a few office buildings in HCMC provide good

parking service.

Score: 2 2 TCVN 276:2003 requires 1 car parking plot per 100m2 floor area


3. Traffic The LIM TOWER is located at the conjunction of Ton Duc Thang St, Nguyenn Huu Canh St,

and Le Thanh Ton St. The building has great advantages for its locations. Because the tower is

located at the boundary of CBD, it is at the hub of transportation to travel to other

districts/provinces (Figure 2).

The most significant point is that the LIM TOWER is only 200m away from the Station 3 of Metro

Line 2: Ben Thanh-Suoi Tien. Metro Line 1 has total 14 stations, and Station 3 is one in 3

underground stations on this line.

Secondly, from this location, it is only short distances to the Thu Thiem tunnel (completed by

end of 2011), and to Khanh Hoi bridge in order to travel to District 2 and District 4. Therefore,

the accessibility to LIM TOWER is relatively good.

The “bottle neck” conjunction at Le Thanh Ton and Ton Duc Thang is slightly a negative point

for LIM TOWER. There are usually congestion at this conjunction during rush hours. People

believe that with better traffic design and better driving behavior is the most effective solution.

Finally, Ton Duc Thang, Nguyen Huu Canh are big road used for trucks and containers to travel

out of town, however, this may not affect to the accessibility and mobility of the LIM TOWER as

these large vehicles are not allowed in city during office hours.

Score: 2

Figure 2: Traffic map from LIM TOWER


4. Market Analysis The LIM TOWER is classified as office building Grade B. Currently, from CBRE July 2011

report3, the average rent for Office building B is $18.72 per spm per month. This section will

analyze both pros and cons measures to evaluate the rent and the trend for leasing this project.

Pros: As presented in the development plan4, the building will

provide 30 floors with 30,000 m2 for office leasing.

Among these, 17 floors (equivalent to 17,000m2) are

secured by contract with Techcombank, and the

remaining 13 floors are open to market. Therefore, the

LIM TOWER’s occupancy rate is always secured at

minimum 57%.

CBRE, Market View HCMC July 201

Another advantage of the LIM TOWER is its location

and parking capacity. These are presented in Section 2

& 3 (Parking capacity and Traffic). These criteria are

the plus for the rental rate for the LIM TOWER,

compared to some other buildings at the same grade (Green Builidng, A&B Building).

While vacancy rate of Grade A is 34.2%, vacancy rate of Grade B is lower at 15.8%. Moreover,

it is forecasted that there will be new promising tenants for Grade B from State own enterprises

and local enterprises upgrading from Grade C or below. Therefore, given the lower vacancy rate

and larger tenant opportunities, the LIM TOWER can be assumed to have rental rate at 20 US$.

Cons:

CBRE, Mid Year Market Review, July 2011

It is forecasted that by the 2013, new office

supply in HCMC will be 540,752m2, in which

202,655m2 will be Grade B. There will be

more competition among these new building

for their tenants.

Although leasing rental at the LIM TOWER

is forecasted to moderately higher than the

average rent rate of Grade B office, the

rental will still follow to the trend of the

3 CBRE Market View Ho Chi Minh City July 2011 4 Official letter No. 1893/SQHKT-QHKTT. Department of Planning and Architecture. July 15, 2010.



market. The rental rate for Grade B are now at level not seen since 20035, and there is no

promising view for the substantial increase in price in the coming years, given the large market

supply and economic situation. As the changes in rental rate has been reducing since 2008, the

escalation rate would be slowly increased only if the recovery of the economy.

Study from CBRE also shows that the “new trend” for a tenant requirement is now moving from

“location” to “sustainable”, “design”, and “management”6. Therefore, having the advantages in

location and traffic do not necessarily provide the LIM TOWER from having a better rental rate

and an escalation rate in the long run.

Score: 2

5. Economic Analysis The LIM TOWER construction started in 2011 and it is expected to complete by Quarter IV

2013. With that plan, leasing will start in 2013. The calculations for evaluation are presented

from Table 4 to Table 9 as the following:

Table 4: Construction schedule and Capital structure

Year 2011 2012 Construction schedule 50% 50% Capital structure (US$) Total development cost (including land cost) 18,500,000 18,500,000 Owner Equity 30% 11,100,000 Bank loan 70% 7,400,000 18,500,000

Table 5: Rough Estimate of Economic Feasibility

Items Amount Project Cost (US$) 37,000,000 Gross Rental Revenue at 100% Occupancy 8,316,000

- 5% Vacancy Rate (415,800)- 20% Operate Cost (1,663,200)

Net Operate Income 6,237,000 Break Even ROR 17%

From the rough estimate of economic feasibility, the project is only economically feasible if the investors require ROR ≤ 17%. However, the fact that the interest rate for loan is extremely high at the last 4 months, from 20-26% per annum; thus with the break even ROR at 17%, the project is not economically feasible. However, this calculation is taken for rough estimation at one year, the more in-depth calculation throughout project years are as below.

5 CBRE Market View Ho Chi Minh City, July 2011 6 Smith, N (2011) What if you build it and they don’t come?, March 17, 2011

Table 6: Bank loan during the construction period and repayment

Total 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Loan at the beginning

7,400,000

27,380,000

32,856,000

34,915,200

29,169,600

23,424,000

17,391,120

11,358,240

5,023,716

-

Interest rate7 20% 20% 20% 20% 20% 20% 20% 20% 20%

Interest

1,480,000

5,476,000

6,571,200

6,983,040

5,833,920

4,684,800

3,478,224

2,271,648

1,004,743

-

Total payable

32,856,000

-

-

4,512,000

5,745,600

5,745,600

6,032,880

6,032,880

6,334,524

5,023,716

-

Interest payable 21,615,792

4,512,000

5,745,600

5,745,600

4,684,800

3,478,224 2271648 1004743.2 0

Principal repayment 11,240,208

-

-

-

1,348,080

2,554,656 4062876 4018972.8 0

Loan at the end

8,880,000

32,856,000

34,915,200

29,169,600

23,424,000

17,391,120

11,358,240 5023716 0 0

7 Assume that with the secure contract with Techcombank, the LIM TOWER project can achieve compatible interest rate at 20% per annum


Table 7: Revenue and expenses

2013 2014 2015 2016 2017 2018 2019 2020

Leasable area (m2) 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000

Escalation rate 0.00% 1% 1% 2% 2% 3% 3% 3%

Rent (US$ psm per month)8

20.0

20.0

20.2

20.4

20.8

21.2

21.9

22.5

Occupancy rate9 78% 90% 90% 95% 95% 95% 95% 95%

Total revenue

5,640,000

6,908,400

6,977,484

7,117,034

7,259,374

7,477,156

7,701,470

7,932,514

Operating expenses10 (20% of Total Revenue)

1,128,000

1,381,680

1,395,497

1,423,407

1,451,875

1,495,431

1,540,294

1,586,503

BTCFs from property operation

4,512,000

5,745,600

5,745,600

6,032,880

6,032,880

6,334,524

6,334,524

6,334,524

BTCFs from selling property11

63,345,240

8 From Section 4. Market analysis 9 Assume that occupancy rate will achieve 90% in year 2, and increasing to 95% in year 4, due to its advantages in office market 10 According to CBRE assumption and calculation 11 Calculation for selling property at year 8 of operation at 10%


Table 8: Profit and loss

Note 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 BTCFs fr. property operation

-

-

4,512,000

5,745,600

5,745,600

6,032,880

6,032,880

6,334,524

6,334,524

6,334,524

Depreciation and amortization

1,924,000

1,924,000

1,924,000

1,924,000

1,924,000

1,924,000

1,924,000

1,924,000

1,924,000

1,924,000

Finishing and facilities 10 years

1,480,000

1,480,000

1,480,000

1,480,000

1,480,000

1,480,000

1,480,000

1,480,000

1,480,000

1,480,000

Building and equipment 50 years

444,000

444,000

444,000

444,000

444,000

444,000

444,000

444,000

444,000

444,000

EBIT

(1,924,000)

(1,924,000)

2,588,000

3,821,600

3,821,600

4,108,880

4,108,880

4,410,524

4,410,524

4,410,524

Interest repayment

1,480,000

5,476,000

6,571,200

6,983,040

5,833,920

4,684,800

3,478,224

2,271,648

1,004,743

-

EBT

(3,404,000)

(7,400,000)

(3,983,200)

(3,161,440)

(2,012,320)

(575,920)

630,656

2,138,876

3,405,781

4,410,524

Cooperate Income Tax12 25%

-

-

-

-

-

-

157,664

534,719

851,445

1,102,631

Net profit

(3,404,000)

(7,400,000)

(3,983,200)

(3,161,440)

(2,012,320)

(575,920)

472,992

1,604,157

2,554,336

3,307,893

12 Vietnam’s Cooperate Income Tax



Table 9: Cashflow and Internal Rate of Return (IRR)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Cash inflows

7,400,000

18,500,000

4,512,000

5,745,600

5,745,600

6,032,880

6,032,880

6,334,524

6,334,524

69,679,764

Bank loan

7,400,000

18,500,000

BTCFs fr. property operation

-

-

4,512,000

5,745,600

5,745,600

6,032,880

6,032,880

6,334,524

6,334,524

6,334,524

BTCFs fr. selling property

-

-

-

-

-

-

-

-

-

63,345,240

Cash outflows

18,500,000

18,500,000

4,512,000

5,745,600

5,745,600

6,032,880

6,190,544

6,869,243

5,875,161

1,102,631

Development cost

18,500,000

18,500,000

Loan repayment

-

-

4,512,000

5,745,600

5,745,600

6,032,880

6,032,880

6,334,524

5,023,716

-

Cooperate Income Tax

-

-

-

-

-

-

157,664

534,719

851,445

1,102,631

Net cashflows (11,100,000)

-

-

-

-

-

(157,664)

(534,719)

459,363

68,577,133

Return of Investment (ROI) 12.2% 15.5% 15.5% 16.3% 16.3% 17.1% 17.1% 17.1%

IRR = 22.32%

The more in depth analysis show the Internal Rate of Return of the LIM TOWER project is at

22.32%, which is a relatively risk for the efficiency of the project, given the assumed interest rate

is at 20%.

Reports show that real estate market has been cold since last year, and has been going down

since May this year. When the Decision No.11 of Vietnam Government is strictly implemented,

inflation will come down in early 2012, following the decrease in interest rate. However, “the

fund from the bank may not be the miracle for the real estate market” (Lan, 2011). Loan for real

estate is reported at 9.94% of the bank outstanding loan, and this figure can get to 30-40% at

some small banks, which is very dangerous for the economy and the real estate market.

Moreover, the gold fever these months may also affect to the economy when the input money

are less in the market, slowing the decrease of the interest rate (VNExpress reporters, 2011).

Therefore, the strict monetary policy in bank credit is needed, ensure that the bank will only

untie credit to projects that are secure and liquidity.

Score: 4

6. Social Impact This section will assess the social impact by the LIM TOWER to the radius of 500m. The LIM

TOWER is located in the conjunction between three main streets: Ton Duc Thang, Nguyen Huu

Canh, and Le Thanh Ton.

Food/restaurants and other services are the main possibility for the impact to the surrounding

residence. The fact that Ton Duc Thang and Nguyen Huu Canh are the main big streets, closing

to Ba Son Port, with very few residential ling. Therefore the social impact is expected to very

low. Lastly, at the other direction, Le Thanh Ton and other small streets nearby are already the

center for food and restaurants for the existing surrounding office building. In conclusion, there

may be no negative social impact from the LIM TOWER.

Score: 3

7. Environmental friendly Whether the building is built with an “environmental friendly” rating system is a key assessment

for this criterion. At first review, the LIM TOWER does not apply any “green construction” or

“sustainable building” standards such as LEED or Lotus.

Energy is now a critical issue for Ho Chi Minh City. Generally, the emergence of this 34 storey

building will require a large energy consumption, which would increase the short of energy for


the City. There is no information available showing clearly the construction of the LIM TOWER

achieves any significant figures in sustainable materials, energy and water conservation, etc.

This would be the limitation in information access in order to make a stronger assessment for

this criterion.

Score: 3

V. CONCLUSION The paper has analyze the LIM TOWER, to the extent of seven criteria selected by the group

exercise. Table 10 presents the summary results of the analysis.

Table 10: Summary results of the evaluation No. Criteria Ranking 1 2 3 4 5

Good Bad Applied

1 Design 1 2 3 4 5 2 Parking Capacity 1 2 3 4 5 3 Traffic 1 2 3 4 5 4 Market analysis 1 2 3 4 5 5 Economic analysis 1 2 3 4 5 6 Social impact 1 2 3 4 5 7 Environmental friendly 1 2 3 4 5 8 Total Score 20

In conclusion, the LIM TOWER accounts for some advantages in their project, i.e. location,

traffic, car-parking capacity, secured occupancy rate. However, with the condition of current

economy, such as high interest rate, this project still faces many challenges. Understanding the

market, the economy, improving the quality of the building (sustainable design and/or

management) can help the LIM TOWER become more competitive in the office building market.



REFERENCES Binh, X. (2011) Đô thị vô tính (Cloning Urban). The Sai Gon Times Online. http://www.thesaigontimes.vn/Home/diendan/ykien/57171/Do-thi-vo-tinh.html. July 19, 2011.

CBRE (2011) Market View Ho Chi Minh City. July 2011.

CBRE (2011) Mid Year Market Review, July 5, 2011.

Smith, N. (2011) What if you build it and they don’t come?. CBRE report. March 17, 2011.

Chung, Q. (2011) Nâng cấp đô thị và chuyện bản sắc (Urban upgrading and the issue of urban characteristics). The Sai Gon Times Online. http://www.thesaigontimes.vn/Home/xahoi/sukien /57168/Nang-cap-do-thi-va-chuyen-ban-sac.html. July 15, 2011.

Currie, C (2011) CBRE HCMC Market Q2 2011, June 28, 2011.

Lan, H. (2011) Vốn ngân hàng không là phép tiên với bất động sản (Bank loan may not be miracle for real estate). VNExpress. http://vnexpress.net/gl/kinh-doanh/bat-dong-san /2011/08/von-ngan-hang-khong-la-phep-tien-voi-bat-dong-san/. August 21, 2011. Reporter group (2011) Cơn sốt vàng và những thử thách đồi với nền kinh tế (Gold fever and challenges to the economy). VNExpress. http://vnexpress.net/gl/kinh-doanh/2011/08/con-sot-vang-va-nhung-thu-thach-doi-voi-nen-kinh-te/. August 24, 2011. Si Dung (2011) “Khát” bãi đậu xe (Thirsty for car parking). Vietnam News.

http://www.baomoi.com/Home/DauTu-QuyHoach/baotintuc.vn/Khat-bai-dau-xe/6416173.epi.

June 9, 2011.

Townsend, M. (2011) Vietnam Real Estate Update and Market Overview; Indigestion in the Property Market. April 4, 2011.

http://www.thesaigontimes.vn/Home/diendan/ykien/57171/Do-thi-vo-tinh.html

http://www.thesaigontimes.vn/Home/xahoi/sukien%20/57168/Nang-cap-do-thi-va-chuyen-ban-sac.html

http://www.thesaigontimes.vn/Home/xahoi/sukien%20/57168/Nang-cap-do-thi-va-chuyen-ban-sac.html

http://vnexpress.net/gl/kinh-doanh/bat-dong-san%20/2011/08/von-ngan-hang-khong-la-phep-tien-voi-bat-dong-san/

http://vnexpress.net/gl/kinh-doanh/bat-dong-san%20/2011/08/von-ngan-hang-khong-la-phep-tien-voi-bat-dong-san/

http://vnexpress.net/gl/kinh-doanh/2011/08/con-sot-vang-va-nhung-thu-thach-doi-voi-nen-kinh-te/

http://vnexpress.net/gl/kinh-doanh/2011/08/con-sot-vang-va-nhung-thu-thach-doi-voi-nen-kinh-te/

http://www.baomoi.com/Home/DauTu-QuyHoach/baotintuc.vn/Khat-bai-dau-xe/6416173.epi

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