Introduction:
Brookfield Residential Properties Inc. is involved in property business and has identified a unique property to invest with the objective of developing the property to earn significant return on investment. Developing a large parcel of land in unique inner city of Calgary, Alberta, Canada requires a proper planning and appropriate execution of the same. To achieve the business objective of earning significant profit from developing the large parcel of land it is important to take into consideration the all possible solutions to the existing problems in developing the land. A brief analysis on all possible solutions to the problems available to Brookfield in developing the large parcel of land in Calgary is provided here.
Analysis:
Problems and issues:
The businesses along the 17th Avenue have struggled over the years despite being considered as one of attractive business locations in Calgary as a result the avenue has always been one of the attractive locations for the youth. The diverse demography in the area makes it challenging for the company to develop the large piece of land as diversity as the communities surrounding is extremely diverse. A huge issue in developing the land is the requirement of getting the approval of every resident of Scarboro to agree to the change of zoning caveat on this plot. The unanimous vote in favor of the change of zoning caveat is quite unlikely (LIU, ZENG and ZHAO, 2018).
Presentation and analysis of alternative solutions:
The best case scenario (plan A):
The first alternative is to zone the site located at 1702-1714 17th Avenue SW for three-storey town homes along with development of a four-storey complex on the avenue. In case the company is successful in changing the use of land to remove the caveat within 12 months than it is possible to a get a 22% return on investment.
The least risky scenario (plan B):
Building a four-storey apartment complex in the avenue with three-storey townhomes as well as single family house in places where the caveat existed to minimize the risk associated with development of the land. With an expected 18% IRR along with 1% decrease for each three months delay to get the approval this is the least risky solution out of all probable solutions to the problem (Mitkova and Mlynarovič, 2019).
The most likely scenario (plan C):
Building three-storey brownstone townhouses in the large parcel of land purchased by the company provides the most viable alternative as the community would be agree to this without any difficulty as they would most likely to see the entire site developed into three-storey brownstone townhouses. The internal rate of return on land economics is expected to be closer to 15% with housing margin expected to be around 18% (Bizer, 2018).
Advantages and disadvantages of possible solutions:
Plan A:
Advantages:
The rate of return on investment is expected to be 22% with housing economics provided a probable 20% gross margin.
Disadvantages:
The disadvantages include the requirement to get approval for maximum site coverage and with every three months delay the rate of return on investment is expected to decline by 1%.
Plan B:
Advantages:
It is the least risky amongst the all probable plans to develop the land with the internal rate of return is expected to be 18%.
Disadvantages:
The gross margin is expected to decrease by 1% in case the approval takes three months time and the decline will continue if the delay continues.
Plan C:
Advantages:
The company will be able to get the approval for the site development at the quickest if it decides to build three-storey brownstone townhouses in the entire block of land purchased by it.
Disadvantages:
The IRR of the project in such scenario is lowest out of all three alternative proposals and plans to develop the site with 15% (Yayla-Küllü, 2019).
Conclusion:
The objective of acquiring the large price of land across the 17th Avenue in neighbourhood of Scarboro, Calgary is to develop the land to earn significant return on the investment. The proposed solution which is expected to provide maximum amount of return on a given risk shall be considered over other proposals. In order to assess which proposed solution expected to aid the company to achieve its objectives of maximizing the rate of return on investment at a given risk a comparative simulation is necessary. After considering the simulation provided in the table below, the most appropriate and suitable recommendation is provided below:
| Plan | Expected rate of return | Expected gross margin | Likely delay to get the approval | Adjusted expected rate of return |
| A | 22% | 20% | 18 months | 16% |
| B | 18% | 17% | 3 months | 17% |
| C | 15% | 18% | No delay | 15% |
Recommendations:
Taking into consideration the discussion above as well as the simulation table provided in the conclusion it is clear that the company should proceed to develop the site as per plan B, i.e. the least risky scenario as the expected rate of returns including the adjusted rate of return after considering the probable delay in getting the approval are greater than the adjusted rate of returns for plan A and C. Hence, the company should proceed with the least likely scenario to develop the large piece of land it acquired in the neighborhood of Scarboro, Calgary (Bai, Hsu and Krishnan, 2019). The
References:
Bai, G., Hsu, S. and Krishnan, R., 2019. Accounting Performance and Capacity Investment Decisions: Evidence from California Hospitals. Decision Sciences, 48(3), pp.309-339.
Bizer, K., 2018. The institutional framework of land-use decisions. Land Degradation & Development, 18(7), pp.561-568.
LIU, M., ZENG, D. and ZHAO, J., 2018. COOPERATIVE INVESTMENT DECISIONS IN COMMUNITY SOURCE DEVELOPMENT. International Journal of Information Technology & Decision Making, 14(02), pp.5-28.
Mitkova, V. and Mlynarovič, V., 2019. Investment Opportunities Identification Based on Macroeconomic Development, the Multiple Criteria Decision Approach. Symmetry, 11(6), p.827.
Yayla-Küllü, H., 2019. Capacity Investment and Product Line Decisions of a Multiproduct Leader and a Focus Strategy Entrant. Decision Sciences, 47(7), pp.645-678.
