|Assessment title: Regency International Case|
|Assessment weighting: 20%|
|Assessment type: Assignment||Word limit: 1500 Equivalent|
|With reference to provided facts from The Regency International case study with the set of scenarios (which will be provided), critically analyse the options on offer, identifying the different categories of property involved. Determine and evaluate the best deal structure and identify the relevant owner and key players. Determine if the new purchase is held under a finance or operating lease. Critically analyse the scenarios and options on offer.|
Business Document with CDU Harvard style referencing. You may use headings and subheadings in the document. If applicable, you may also include comparison tables and calculations to back up your recommendations.
Provide evidence of academic research and wider reading on the topic.
Attachment A: Assessment 1 Case Study information
Note: This is a fictitious case study. Names, characters, businesses, places, events, and incidents are the product used in a fictitious manner. Any resemblance to actual persons, businesses, living or dead, or actual events is purely coincidental.
The property and real estate business entity Regency Group has been known for the construction of different buildings, malls, offices, residential apartments, and other properties. The company has been founded about 38 years ago. According to the chairperson of the entity, the company has been started with a small number of individuals for cracking deals and business projects. There were several mistakes and error has been recorded within the journey to the success of the large business organization operating in the market. In the recent past, the company has been planning to introduce its hotel property. The segment has been focused on the list of activates, evaluation, and analytical aspects are required controlee for processing, controlling, and proper management of the hoe property constructed under the Regency Group.
1. Deals and Scenario
Throughout its business performances, Regency Group has been involved in different forms of construction deals and completed hem in a better and reliable manner. The company has been completed construction of a warehouse with 4000 square meters are of land in Rothbury. The company has acquired the land with an investment of $350000. The land bought by the company has been situated in 10 minutes of distance from the CBD. The demand for warehouse assets has been removed from the mortgaged to the decline of the demand of the warehouse areas in the recent years; the owner of the entity has received a rent value of $25000. There has been slow depreciation over the value of the assets, steels of the warehouse have started showing its age. The warehouse has not been even suitable for any town hall facilities or even not considered for residential purposes. The properties like lands, buildings, industrial areas have been planned or already sold by the entity expected of this property. The land must be enquired to be reconstructed and rebuilt before it is proposed again for sales within the market.
2. Financials and feasibility
The chairperson of the company has provided the consultancy deals to Sophie Lonsdale, a consultant from jacaranda hospitality consulting. The consulting firm has been an expert for hotel management and assets management. The company has recruited the consultant for market research and analysis for the extraction of information on the suitability of constructing a hotel at the specific land. The land has been low demands due to the poor construction situation of the warehouse however the idea of constructing a hotel in the same land has been well received by the company from the customers. The market analyses have suggested that there is high-end reliability for the construction of a hotel in that area; it will be attractive for the visitors. As per the financial viability, it has been expected that the company will be able to generate a 3% growth in the RevPAR from the new hotel. As per the financial viability, it has been estimated that the company has to bear a value of $180000 per room as the cost of production. All the deals have to be cleared by the Regency Group by cleaning leverage of 55 of the cost of capital for each of the projects. The broker of the business entity has been provided with different funding options for creating a beat deal for the hotel. Allstar Banking and Eastparc Banking have offered the best deal of proposing funds to the Regency Hotel for the construction of its properties. As per the Allstar Bank, it has offered 60% of the LVR with an interest rate of 7.5% for a term period of 20 years. On the other aide, Eastparc Banking has proposed an offer of 55% of LVR with an interest rate of 7% for the term period of 25 years. Both the lenders have stated that there have been risks of debt for nonaffiliated brands as the debt coverage ratio has been estimated 1.5 times. According to Sdino, Rosasco and Magoni (2016), the right investment choices depends on the ability to generate a balance between positive cash flow and the annual percentage of return. However, in the case of Regency International Group, the banks who offered funds for the project identifying a 1.15-time debt coverage ratio which is increasing the risk percentage and can hamper the balance between positive cash flow and annual percentage of return. Therefore, the financial feasibility in the eyes of the investors is on a negative track.
3. Owner and key relevant players
The chairperson of the Regency Group has stated that the new projects require investment and support of all the internal and external stakeholders. The key players in the new hotel projects include the collaborated consulting firm, which has been included construction activities for the new hotels. Ivy Courts have been worked as the financial broker for the firm to propose the properties within the market. Hjelte Jonasson and Prick (2018) pointed out that real estate owners are the long term investors and the end product or the property they choose to develop a matter of risk due to uncertainty and risks including political and legal aspects and local political situations. The banking intuitions, which have proposed the lending amounts for the construction of the hotel, were also considered as the prime players and key stakeholders of the company and are the major risk-takers for the construction of the hotel. Market researchers, fund managers, distributors, and supplies can also be considered as the external players of a business (Tutuko and Shen 2016). For the regency group, the marketers and the market researchers who will market the hotel are one of the key players as based on their marketing ability, the hotel will be able to flourish and reach its objectives. According to the internal players, the chairperson of the Regency Group has been the prime player and contributor to the particular hotel construction and success. There were hotels like Allwood Hotel’s Peter Rooke has been one of the players for the business, a bit as bought different lease agreements for the company.
4. Scenario of finance management
The warehouse structures and lands have been no use since the facilities have become obsolete and poor in nature of the element. Thus, there is a need for fast redevelopment and reconstruction of the buildings over this land before it also becomes obsolete and all the investment of the firm goes to lose. For engaging reconstructions of the buildings, there is a requirement of finances and resources for generating funds that can reduce the risk of halting a chosen project from continuing (Nelson & deRoos, 2018). To reduce the risks associated with the construction, the Regency Group has been seeking the financial sources which are suitable for the business. Therefore, Allwood Hotels Peter Rooke has been proposed a managerial agreement with the use of the subsidiary brand. Under the order of HMA, there has been a lease agreement offered by Peter Rooke for the reduction of the associate fund risks of the constriction projects of the company. It has also increased the lender's assessment in the context of the hotel construction project of the company.
5. Issues of the risk control structure and opportunity
The most common risks towards a construction project are unpredicted inflation rate, design errors, changes in government laws, local regulations as well as policies (Siraj and Fayek, 2019). One of the contemporary issues that have been found in this report is the approval of the council for construction, processing, and operating hotel business in the area. Thus, it is not an easy part to get possession of hotels running permission in the residential areas. In addition to the hat, the business might be slightly cut to the targeted market as the hotel land is situated a little far from the CBD area. Another issue is to raise funds of an estimated $4000000 as per the equity level for gentling the cost of capital for the business. The hotels need to introduce off of nights deal for its customers. It has expected that the new hotel will be to cover it as per the cost of capital and production through its targeted market.
The chairperson of the hotel has been interested in the option of the lease agreements as part of generating funds for the construction of the hotel. It has been assumed that Regency Hotel Group can gain a reliable option to generate income from its new hotel. However, there is a possible increase in the cost of the capital of the hotel.
The company might have to increase its monitoring over the production costs so that it could not make an impact on the income generated from the new hotels. The Regency Group might require to acquire a small hotel in regards to understand the operations of the hotel industry in the market. The Best Apartments has been proposed to the customers, who have invested long term oriented monetary values within the project including learning about its associated risks. The company might require engaging talented agencies for gathering an agented group of individuals to complete the construction project. In the place of ease agreement, it might be included with the incubator, venture capital, or other investors funding, which might be less complicated (Sanga & Mselle 2018). In the process of development, the company might enquire to include a monthly project for keeping control over its operational costs.
As per the conclusion of the study, the present hospitality industry has a highly competitive environment. Thus the Regency Group might rare to apply some distinctive strategic approaches to enter into the industry that had generated its customer base. The company has been focused on the construction of the mall, residential houses, buildings, and other properties. Thus the introduction of its property in the form of a hotel will be a perfect chance to increase its brand and company performance in the market.