RIGA SHOPPING MALL

RIGA, LATVIA
FEASIBILITY STUDY
Preparation and Analysis:
Bank Financing of
Construction Project
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 residential
This shopping mall space will be the first of its
kind in and around Riga
The Project
The project site is situated on the main
highway between Riga and Riga
International Airport.
3 - 4 minutes to reach the Mall site from the
center of Riga by way of the bridge over the
Daugava River
3 minutes' drive to the southwest is an old-
Soviet-style multiple high-rise housing
complexes in which close to a quarter of a
million persons presently reside.
The Project
The project site is situated on the main
highway between Riga and Riga
International Airport.
Most of these people work in Riga and must
reach their jobs by using the highway, thus
ensuring that they will pass the Mall twice a day
There are virtually no shopping facilities of any
size or substance in the vicinity of this housing
area.
Term Sheet
DESCRIPTION: $48 million conventional
construction and/or take out loan (mortgage);
term: 7 10 Years (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 the
land may be conveyed at the start of construction) and
MOS-MALL (improvement);
(2) Full guarantee of initial draw- down;
(3) Performance and payment (subcontractors and
suppliers) bond.
Term Sheet
EQUITY: Flexible in terms of debt equity
mix but can be structured to include:
(1) straight equity injections
(2) land; worth after clearing which has been
completed - $1.5 million presently owned by
MESA 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.
Term Sheet
PURPOSE: Construction of commercial Western
standard "mall" area which will contain retail
commercial establishments (a large western
"department store selling mid-range goods priced
to be affordable, and a large auto show-room will
serve as an anchor tenants), up-scale restaurants,
a general-purpose hall, above ground parking, a
petrol and refueling station, and a 13-14-story
office/residential apartment tower. With a
tentative list of viable, interested parties, tenant
commitments will grow quickly once project
receives a conditional commitment.
Term Sheet
PROJECT SITE: Situated on principal route
to new Riga International airport. Most
people work in Riga and must reach jobs by
using the highway, ensuring that they pass
the Mall twice a day. Virtually no shopping
facilities of any size or substance exist in
vicinity of this project.
Term Sheet
EQUITY YIELDS: Final deal structure will
determine project equity yields.
While preliminary analysis point to average
equity ROE 31.9%, returns appear understated.
If rents increase beyond projection assumptions
relative to supply/demand factors, increase in
GDP, continuing control of inflation, and
expected increase in disposable income,
average ROE should increase beyond 45%.
Term Sheet
LENDERS PRIMARY SOURCE OF PAYMENT
CASH FLOW: Conservative projections geared to
test 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 additional
equity over $7 million and
(3) whether, after debt service, returns are available to
service equity participants. Given conservative
projections, it appears the project is solid and sound in
terms of full lender payout.
Term Sheet
CONSTRUCTION: MESA HOUSING
GROUP, INC.: (Architect / designer-builder).
Principal participant for design and construction,
MESA is highly experienced in working in Russia
and the surrounding republics, as well as in
North Africa and, of course, Turkey.
The firm received international recognition for the
massive housing project at Tchailkowvka, Russia, to
house contingents of Russian officers and their
families returning from postings in East Germany.
Term Sheet
The MESA GROUP of Companies (MESA),
based in Ankara, Turkey, is a fifteen (15)
corporation conglomerate which has
operated for over 25 years in real estate
development, construction, engineering and
architectural, resort and tourism, and
marketing fields.
The firm developed, designed and delivered
more than twenty-five major housing complexes
with all related facilities, in Turkey and abroad.
Term Sheet
SURVEY OF EXISTING FACILITIES IN RIGA
RELEVANT TO THE MALL:
a) Existing office stock versus need
A shortage of Western standard office space
continues to dog the Riga market. Much of the
trading and office spaces in Riga do not
correspond to Western standards.
As a result, rental agreements with upwards of 30%
of future tenants are generally reached while
construction is still in progress;
Term Sheet
b) Current rental/purchase rates:
As of April 1998, rents for offices and
shops in downtown Riga is 40-60 US$ per
square meter per month. (Lower rates
pertain for so called "Russian standard"
offices)
Higher rates are generally available for
fully equipped "Western standard" offices.
Purchase of office and residential space is
over $US 1,000 per M2 and climbing
Term Sheet
ECONOMIC AND MARKET CONDITIONS
IN LATVIA AND RIGA: Since regaining
independence in 1991, Latvia has put in
place a comprehensive program of
economic reforms which will develop an
open market economy based on free trade
and competition. Latvia now is welcoming
extensive international trade and
investment.
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 Lif t and Escalator
Sanitary System
HVAC Works
Shopping Center
The Budget and Construction Costs
STARTING WORKS
Land Fee
Design and Permits
Advance Payment
Subtotal
The Budget and Construction Costs
RESIDENCES
Excavation
Foundation and Structural System
Civil Works
Garage Foundation and Structural System
Garage Civil Works
The Budget and Construction Costs
RESIDENCES
Civil Works Finishing
Fixed Furniture and Decoration
Electric and Electro-mechanic Works
Passenger Lifts
Sanitary System
Heating System
Subtotal
The Budget and Construction Costs
SHOPPING CENTER
Excavation
Foundation and Structural System
Civil Works Course
Civil Works Finishing
Fixed Furniture and Decoration
Electric and Electro-mechanic Works
Passenger Lift and Escalator
Sanitary System
Subtotal
The Budget and Construction Costs
FINISHING WORKS
Infrastructure and Landscaping
Approvals and Permissions
Subtotal
Project Total
Development of a
Project Budget: Details
The Riga Project
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