Hopefully not boring everyone on the board with financial lingo i
will try to answer as simply as possible.
I purposefully didn't run this into perpetuity because i think it
would be absurd to give up the rights to ownership forever. Hence
my ten year term. I could have picked 30 years which is how many
such projects are financed. Obviously the longer the period the
more the upfront payment to the town.
Return in this instance is IRR but takes into account the time value
of money. Remember that to the investor the initial returns are
negative but the out year returns are very postive but averaged out
equates to 10%. Or put another way, it takes about 6 years for the
investor to break even but then years 6-10 are all gravy but the
overall IRR is 10% (again no leverage is used)
I didn't use a cap rate because the investor has no ownership at the
end of a term. That is the same reason i didn't include change in
value because that will benefit the town, not the investor.
The only snafu is that the town would probably have to guarantee the
payment stream because no investor in their right mind would sign up
such a deal without collateral to fall back on. So because they
don't own the spots, the investor would need a guarantee.
This is where a lot of the interesting scenario's come in but
requires the town to not "screw it up". The town could guarantee a
specific payment but then keep any overages. The investor has a
guaranteed income stream and the town gets the money's over a
certain level. The rub is that you are making a bet that
redevelopment continues, the meters bring in the "forecasted
revenues" and that is probably just too dicey considering the town's
current situation. I wonder if the state would work with the town
so Asbury can get off the dole with some performance metrics
outlined to make sure redevelopment continues on course. I'm just
free associating here so feel free to add if anyone has any other
ideas.
> >
>
> Your math only holds true for a short period (no reversionary
> interest) and does not account for appreciation (increase in
parking
> fees). What do you mean by return? IRR or return ON capital or cap
> rate - a return OF and ON capital.
>
> There is a difference between YIELD (Y) and CAP (R) rates. Because
R =
> Y - Change in Value, if there is appreciation (increase in value as
> there always is - and would be in this case IF the operator could
> increase parking fees over the 10-year period), Y (yield, discount,
> interest rate or IRR) is almost always higher than the R (cap
rate).
>
> Thus, if the investor is looking for an IRR of 10%, the cap rate is
> lower. I was going to reply to oaks post that I would think a cap
rate
> of 6%-8% would be appropriate. Last year it was probably under 5%.
>
> At 6%, the $1.344M would be worth $22.4M assuming the income stream
> could be capitalized into perpetuity ($1.344/6%). Under something
like
> Oak suggests (75-year term) direct capitalization would be more
> appropriate than your discounting method, and even that does not
> account for an increase in the income over the 10-years. (a CAP
rate
> reflects the relationship between a SINGLE estimate of income and
> value, while a YIELD rate is the relationship between a SERIES of
> incomes and value.)
>
> The parking spaces in AP are very valuable but SHOULD not be
leased in
> my opinion, unless on a short-term basis with kickers and sharing
of
> revenues.
>
> Getting the money up front would only makes us blow it.
>
------------------------------------
Yahoo! Groups Links
<*> To visit your group on the web, go to:
http://groups.yahoo.com/group/AsburyPark/
<*> Your email settings:
Individual Email | Traditional
<*> To change settings online go to:
http://groups.yahoo.com/group/AsburyPark/join
(Yahoo! ID required)
<*> To change settings via email:
mailto:[EMAIL PROTECTED]
mailto:[EMAIL PROTECTED]
<*> To unsubscribe from this group, send an email to:
[EMAIL PROTECTED]
<*> Your use of Yahoo! Groups is subject to:
http://docs.yahoo.com/info/terms/
