Financial Institution and Construction Case Study

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Cricket Road

Mason Sexton is trying to renovate the house he inherited located in Charlottesville. The area is a prime location, and with the proposed construction of a multi-storey building, it will attract a good number of tenants. Sexton is not experienced in real estate development, and he has been making calculations based on the research he has carried out. The costings he has come up with are not viable since no financial institution is willing to back his project by offering him a loan. Sexton has managed to carry out most of the investigative, conceptual, and planning stages by himself. However, he runs into problems due to his inexperience in the initial planning stages. He has not managed to obtain funding for the project, and he has to spend money to create the plans and obtain a certificate of occupancy. Sexton has underestimated the construction costs, and he has placed unrealistic targets for rental income. All this has forced him to adjust his development plans by looking for ways to cut costs, either by reducing floor space or reducing the number of items available. Sexton is yet to receive financing for the project, and he might end up missing his January 2005 target.

Hypothesis

This project has been underestimated from the start, and the projected rental income is too high. The lack of appropriate knowledge in regards to construction planning is evident in the way Sexton is carrying out the project. The lack of financial backing from the various institutions should be a clear indicator of how invaluable the project might be to the area. On paper, the construction looks viable, but once the actual process has begun things keep cropping up that result in the project stalling. The hypothesis is that this project will not be completed on time and it might not live up to its projections once completed. As noted, there has been an increase in the construction projects within the area and Sexton's construction will be one amongst the rental properties available to students. This shows there will be competition and possibility of rental incomes coming down as the years' pass. The costs for the construction will continue to rise as Sexton is trying to secure financing, and there is a possibility that the financing secured will not be enough to cover the costs.

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Sexton is an inexperienced developer, and this shows in the way he approaches the construction project. Sexton has made changes to his initial plans on ways he can reduce the construction costs. The reduction of the kitchens and removal of ceramic tiles. The changes Sexton has proposed might be viable in the short-term, but they will be required later on. It has been noted that the construction costs for Charlottesville are the highest in the nation, but Sexton still believes he can make a good return on his investment. This is not correct because the project would cost more and the rents would not increase as he anticipates. Further, the reason the construction costs are increasing is because there are many people carrying out construction within the area and outskirts of town. Students preferred to live close to the school, and this has been the push that Sexton has had all along. However, with the increased construction in order to save on rent, students might opt to rent far from the school. This would have a huge impact on Sexton since he would lose out on the potential income.

Alternatives

There are two viable alternatives that Sexton can embrace. The first one would be to sell off the property and the land as it is and make his money while there is still potential for purchase. Looking for a developer especially now that the area has begun blossoming will allow Sexton to make money from his inheritance and there is a high likelihood that someone will be willing to purchase the property. Sexton should also consider the fact that he will not be around to manage and oversee the house once it's completed since he does not live there. Sexton was proposing convincing his mother to live in the….....

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