Case Study: Property Development
A Developer has identified the potential site on the Highway which leads to the Airport. He is looking to build a Restaurant and a 44 Bedroom, lodge type of Hotel. First, he requires clearing a number of hurdles namely:
1. The current owner is reluctant to sell quickly as he would require completing the last harvest of sugar cane that occupies part of the site.
2. The Central Government has given the necessary clearance to covert the agricultural land in industrial/commercial area. However, the District Council has only approved application for Restaurant and is still considering the application for lodge.
3. Major Oil Company has also made an offer to owner to lease part of the front site in view to develop a petrol station/ shop.
The developer has offered Rs3.5M for the site and wants entry in four months to start construction after clearing the land of all sugarcane plants. It is probable for the Developer to consider the offer of the petrol station but this would require direct negotiation with the Oil Company. As per the new plan, the petrol station should be re-sited and the Developer is looking that the station design be in harmony with the new buildings.
As the District Council is still progressing with the application for lodge, the developer has offered to purchase the site in three instalments:
1. First instalment of 1.0M after completion of the contract in two weeks’ time.
2. Second instalment of 1.0M on entry of his construction teams in 4 months.
3. Last instalment of 1.5M on receipt of construction clearance for the lodge hotel.
The owner of the site is very interested in the transaction as he is migrating to Canada under the business scheme. For that, he needs to transfer all his assets to ease his qualification for a resident’s permit. He further looks to purchase his own house.
He is looking to earn Rs500, 000 from the last cane harvest and this could take him four months. His other business interests will take much longer to sell and are worth 1.5M.
The Canadian authorities notified him that he has 21 days to deposit an equal Rs250, 000 residential bonds, which he should show, is his own and not borrowed money. Delay of depositing the Residential Bond could result in the cancellation of his temporary entry to Canada.
Suppose that you have been engaged by owner as a Consultant and he has presented you with the problem as your assignment.
Question1. What would you estimate are the main interests of the owner in his situation?
Question2. What are the likely issues for negotiation from each party’s viewpoint?
Question3. What would you estimate the other party’s priorities to be and what would you conclude from this?
Question4. When would you develop a first proposal to the developer which takes account of your client’s interests and inhibitions?
Question5. What in your view are likely to be the major areas of contention between the developer and the owner?