Riga Project Feasibility Study

7/28/2019 Riga Project Feasibility Study

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RIGA SHOPPING MALLRIGA, LATVIA

FEASIBILITY STUDYPreparation and Analysis:

Bank Financing ofConstruction Project


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The Project

Two stories of a commercial Western standard"mall" area retail commercial establishments a bank service establishments (laundry, dry-cleaning etc) up-scale restaurants fast-food facilities a night-club and disco

office and residentialThis shopping mall space will be the first of its

kind in and around Riga


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The Project

The project site is situated on the mainhighway between Riga and RigaInternational Airport.

3 - 4 minutes to reach the Mall site from thecenter of Riga by way of the bridge over theDaugava River

3 minutes' drive to the southwest is an old-

Soviet-style multiple high-rise housingcomplexes in which close to a quarter of amillion persons presently reside.


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The Project

The project site is situated on the mainhighway between Riga and RigaInternational Airport.

Most of these people work in Riga and mustreach their jobs by using the highway, thusensuring that they will pass the Mall twice a day

There are virtually no shopping facilities of anysize or substance in the vicinity of this housingarea.


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Term Sheet

DESCRIPTION: $48 million conventionalconstruction and/or take out loan (mortgage);term: 7 10Years (Terms flexible), rate: 10%(or lower).

SECURITY: (1)Mortgage of land and improvement to be executed

by MESA (land - or such other entity as to which theland may be conveyed at the start of construction) andMOS-MALL (improvement);

(2) Full guarantee of initial draw- down; (3) Performance and payment (subcontractors and

suppliers) bond.


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Term Sheet

EQUITY: Flexible in terms of debt equitymix but can be structured to include: (1) straight equity injections

(2) land; worth after clearing which has beencompleted - $1.5 million presently owned byMESA and investors;

(3) preparation of design and engineering

drawings by MESA ($1 million +/-) (4) condo sales $3 - $5 million held in escrow.

(4) LOC enhancements and/or structures.


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Term Sheet

PURPOSE: Construction of commercial Westernstandard "mall" area which will contain retailcommercial establishments (a large western"department store selling mid-range goods priced

to be affordable, and a large auto show-room willserve as an anchor tenants), up-scale restaurants,a general-purpose hall, above ground parking, apetrol and refueling station, and a 13-14-storyoffice/residential apartment tower. With a

tentative list of viable, interested parties, tenantcommitments will grow quickly once projectreceives a conditional commitment.


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Term Sheet

PROJECT SITE: Situated on principal routeto new Riga International airport. Mostpeople work in Riga and must reach jobs by

using the highway, ensuring that they passthe Mall twice a day. Virtually no shoppingfacilities of any size or substance exist in

vicinity of this project.


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Term Sheet

EQUITY YIELDS: Final deal structure willdetermine project equity yields.

While preliminary analysis point to average

equity ROE 31.9%, returns appear understated.

If rents increase beyond projection assumptionsrelative to supply/demand factors, increase in

GDP, continuing control of inflation, andexpected increase in disposable income,average ROE should increase beyond 45%.


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Term Sheet

LENDERS PRIMARY SOURCE OF PAYMENTCASH FLOW: Conservative projections geared totest viability of the project to protect construction(and/or take out lender) in terms of (1) ability of the project to generate operating cash

flows over debt service

(2) probabilities that the project requires additionalequity over $7 million and

(3) whether, after debt service, returns are available toservice equity participants. Given conservativeprojections, it appears the project is solid and sound interms of full lender payout.


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Term Sheet

CONSTRUCTION: MESA HOUSINGGROUP, INC.: (Architect / designer-builder).

Principal participant for design and construction,

MESA is highly experienced in working in Russiaand the surrounding republics, as well as inNorth Africa and, of course, Turkey.

The firm received international recognition for themassive housing project at Tchailkowvka, Russia, tohouse contingents of Russian officers and theirfamilies returning from postings in East Germany.


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Term Sheet

The MESA GROUP of Companies (MESA),based in Ankara, Turkey, is a fifteen (15)corporation conglomerate which has

operated for over 25 years in real estatedevelopment, construction, engineering andarchitectural, resort and tourism, andmarketing fields. The firm developed, designed and delivered

more than twenty-five major housing complexeswith all related facilities, in Turkey and abroad.


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Term Sheet

SURVEY OF EXISTING FACILITIES IN RIGARELEVANT TO THE MALL:

a) Existing office stock versus need

A shortage of Western standard office spacecontinues to dog the Riga market. Much of thetrading and office spaces in Riga do notcorrespond to Western standards.

As a result, rental agreements with upwards of 30%of future tenants are generally reached whileconstruction is still in progress;


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Term Sheet

b) Current rental/purchase rates:As of April 1998, rents for offices and

shops in downtown Riga is 40-60 US$ per

square meter per month. (Lower ratespertain for so called "Russian standard"offices)

Higher rates are generally available for

fully equipped "Western standard" offices.Purchase of office and residential space isover $US 1,000 per M2 and climbing


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Term Sheet

ECONOMIC AND MARKET CONDITIONSIN LATVIA AND RIGA: Since regainingindependence in 1991, Latvia has put in

place a comprehensive program ofeconomic reforms which will develop anopen market economy based on free trade

and competition. Latvia now is welcomingextensive international trade andinvestment.


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The Budget and Construction Costs

0 500 1000 1500 2000 2500 3000 3500 4000 4500

Excavation

Foundation and Structural System

Civil Works Course

Civil Works Finishing

Fixed Furniture and Decoration

Electric and Electromechanic Works

Passenger Lift and Escalator

Sanitary System

HVAC Works

Shopping Center


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STARTING WORKS

Land Fee

Design and Permits

Advance Payment

Subtotal


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RESIDENCES

Excavation


Civil Works

Garage Foundation and Structural System

Garage Civil Works


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RESIDENCES

Civil Works Finishing


Electric and Electro-mechanic Works

Passenger Lifts

Sanitary System

Heating System

Subtotal


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SHOPPING CENTER

Excavation


Civil Works Course Civil Works Finishing


Electric and Electro-mechanic Works

Passenger Lift and Escalator

Sanitary System

Subtotal


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FINISHING WORKS

Infrastructure and Landscaping

Approvals and Permissions

Subtotal

Project Total


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Development of a

Project Budget: DetailsThe Riga Project

Excel Workbook Analysis

Riga Project Feasibility Study

Documents

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