An Asian Direct and Indirect Real Estate Investment Analysis

By Kim Hin David HO

This book is dedicated to real estate scholastic work, in advancing
the greater understanding of real estate investment analysis. This is
because there has been limited research in bringing out clearly the
uncertainty or risk, which is quantifiable uncertainty in real estate
market analysis. Even real estate market research, which is carried
out as an industry practice among private real estate researches, is
no exception. Another reason is that it has been widely accepted
that while the financial revolution has substantially changed many
sectors of the financial industry, it has made little impact on real
estate development and investment practice as Ill as scholastic work.
Furthermore, while it is readily acknowledged that despite its huge
share in the world Ialth, real estate investment discipline and research
is on the whole still a poorly researched subject area.
As a result, the industry tends to be dominated by traditional
real estate analysts with little understanding of real estate market
uncertainty and capital markets. These commentators are widely
regarded to spend too much time worrying about local space supply
and demand conditions, while totally losing sight of the everchanging
real estate market and capital market conditions.
The theme of this book is real estate investment analysis
of direct and indirect real, which in turn can be appropriately
managed under economic theory and the theoretical conceptions
of real estate finance, provided the uncertainty is quantifiable.
The book deploys case studies involving Singapore and Asia. This
Black over White background
viii
framework enables real estate market analysis to attempt what
defines the Asian direct and indirect real estate sectors; what is
being measured; how it behaves (in terms of price and non-price
factors); how it is structured and how it effectively achieves the
objectives of sustainable total returns and manageable real estate
market uncertainty.
Managing real estate market uncertainty optimally is achieved
at the portfolio level through real estate asset allocation. This is
important because the real estate portfolio is able to virtually
eliminate the unique (i.e. specific) uncertainties among the various
Asian real estate sectors; thus retaining within the portfolio only
the systemic (i.e. market-wide) uncertainty. Apart from real
estate asset allocation, the alternative and modern approach to
risk management at the portfolio level, is the value-at-risk (VaR)
approach. Another modern and important alternative to coping
with uncertainty is real option analysis and pricing that help to
better define real estate market uncertainty in extent and time.
Real option analysis and pricing also represent uncertainty via a
decision tree and the risk-neutral probability conception, in order
to comprehend how uncertainty impacts on the value of real estate
investment decisions. The pricing of uncertainty is based on the
risk-free hedge security conception. These are best examined at
the micro level of the investment in a real estate development
opportunity on vacant land.
Nevertheless, the real estate sectors in Singapore and Asia offer
promising prospects since the Asian currency crisis of 1997. It is now
timely to take stock and make an assessment of how the sectors would
pan out for the future, Ill into at least rest the next century.
I are very pleased to present our thinking and research in
international real estate with particular emphasis on Asia. The
region’s vast potential for real estate is itself a large incentive for
international real estate research and education that has inspired me
to document the significant work I have done over the years.
Black over White background
ix
I wish all readers a pleasurable reading of this book, and I thank
you sincerely for your support without which the publication of this
book would be made all the more difficult.
Dr HO, Kim Hin / David
Honorary Professor
(University of Hertfordshire, UK)
(International Real Est

• Language: English
• Publisher: Partridge Publishing Singapore
• Release date: May 4, 2021
• ISBN: 9781543764093

Kim Hin David HO

Dr HO Kim Hin / David is Honorary Professor in Development Economics & Land Economy, awarded by the UK public university, the University of Hertfordshire. He retired end-May 2019 as Professor (Associate) (Tenured) from the National University of Singapore. Professor HO spent the last thirty-one years across several sectors, which include the military, oil refining, aerospace engineering, public housing, resettlement, land acquisition, land reclamation, real estate investment , development and international real estate investing. He spent six years in the real estate career as part of the executive management group of Singapore Technologies at Pidemco Land Limited, and as part of the senior management team of the Government of Singapore Investment Corporation’s GIC Real Estate Private Limited. Seventeen years are spent in the National University of Singapore at the then School of Building and Estate Management, the Department of Real Estate, School of Design and Environment, where his research expertise is in two areas. First is international real estate in the area of risk-return behavior behind international real estate investing in direct and indirect real estate. Secondly, is urban and public policy analysis involving real estate, sea transport, public housing, land and land use. Schooled in development economics and in land economy at the University of Cambridge, England, he has effectively extended these disciplines to examine his two expertise areas. Apart from being well versed in econometrics, his quantitative interests include real estate demand and supply, investment and finance, artificial intelligent modeling in real estate and system dynamics modeling for real estate market analysis and public policy analysis. He is the Member of the Royal Economics Society (U.K.), Academic Member of the National Council of Real Estate Investment Fiduciaries (U.S.), Fellow of the American Real Estate Society (U.S.), member of the American Economic Association (U.S.) and member of the Economic Society of Singapore and the Singapore Institute of Management. He holds the degrees of Master of Philosophy (1st Class Honors with Distinction), Honorary Doctor of Letters and the Doctor of Philosophy from the University of Cambridge, U.K. He has published widely in top international journals and conferences, in chapters of international academic book publishers. Dr Ho has written 11 major books (including this book), undertaken many consultancies and funded research projects. He has written a total of about 275 published works (with 91 in peer reviewed, reputable international journals). He is an editorial board member of the Journal of Economics & Public Finance, Real Estate Economics journal, Journal of Property Research, Journal of Property Investment & Finance, Journal of Real Estate Finance & Economics, the Property Management journal and the International Journal of Strategic Property Management. He has published widely in conferences, Finance, chapters of international academic book publishers, undertaken many consultancies and funded research projects. He is an immediate past Governor of the St Gabriel's Foundation that oversees nine schools in Singapore; and a District Judge equivalent member of the Valuation Review Board, Ministry of Finance, Singapore, and the Singapore Courts.

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All rights reserved. No part of this book may be used or reproduced by any means, graphic, electronic, or mechanical, including photocopying, recording, taping or by any information storage retrieval system without the written permission of the author except in the case of brief quotations embodied in critical articles and reviews.

Because of the dynamic nature of the Internet, any web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

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CONTENTS

Foreword

Acknowledgements

Chapter 1Investment Analysis and Real Estate Market Analysis (REMA)

Chapter 2The History of the Real Estate Cycle in the Last 50 years - Asia and the Emerging Markets

Chapter 3Net Operating Income (NOI), Capitalization (Cap) Rates, Bottom-Up Real Estate Investment Analysis and Local Practice

Chapter 4Real Estate Asset Allocation and Investment

Chapter 5A Residential Investment Fund under Modern Risk Management via VaR, Incremental VaR and RAROC Approach – An Asian Case Study

Chapter 6Indirect Real Estate Investment Innovation – A Value Investing Framework in Examining Singapore REIT Stocks

Chapter 7Indirect Real Estate Investment Innovation — Prologis trust – an investigative research perpsective

Chapter 8Islamic Finance as a strategic financing alternative for Real Estate developers; Case studies of Malaysian Islamic finance in a highly competitive conventional banking environment

Chapter 9The Commercial Mortgage-Backed Bonds Investment

Chapter 10The Real Estate Mezzanine Investment

Chapter 11The Commercial Mortgage-Backed Securities (CMBS)- A Structural Cash Flow and Prepayment Numerical Valuation Model

Chapter 12The Real Options Investment for Real Estate

Appendices

FOREWORD

This book is dedicated to real estate scholastic work, in advancing the greater understanding of real estate investment analysis. This is because there has been limited research in bringing out clearly the uncertainty or risk, which is quantifiable uncertainty in real estate market analysis. Even real estate market research, which is carried out as an industry practice among private real estate researches, is no exception. Another reason is that it has been widely accepted that while the financial revolution has substantially changed many sectors of the financial industry, it has made little impact on real estate development and investment practice as Ill as scholastic work. Furthermore, while it is readily acknowledged that despite its huge share in the world Ialth, real estate investment discipline and research is on the whole still a poorly researched subject area.

As a result, the industry tends to be dominated by traditional real estate analysts with little understanding of real estate market uncertainty and capital markets. These commentators are widely regarded to spend too much time worrying about local space supply and demand conditions, while totally losing sight of the ever-changing real estate market and capital market conditions.

The theme of this book is real estate investment analysis of direct and indirect real, which in turn can be appropriately managed under economic theory and the theoretical conceptions of real estate finance, provided the uncertainty is quantifiable. The book deploys case studies involving Singapore and Asia. This framework enables real estate market analysis to attempt what defines the Asian direct and indirect real estate sectors; what is being measured; how it behaves (in terms of price and non-price factors); how it is structured and how it effectively achieves the objectives of sustainable total returns and manageable real estate market uncertainty.

Managing real estate market uncertainty optimally is achieved at the portfolio level through real estate asset allocation. This is important because the real estate portfolio is able to virtually eliminate the unique (i.e. specific) uncertainties among the various Asian real estate sectors; thus retaining within the portfolio only the systemic (i.e. market-wide) uncertainty. Apart from real estate asset allocation, the alternative and modern approach to risk management at the portfolio level, is the value-at-risk (VaR) approach. Another modern and important alternative to coping with uncertainty is real option analysis and pricing that help to better define real estate market uncertainty in extent and time. Real option analysis and pricing also represent uncertainty via a decision tree and the risk-neutral probability conception, in order to comprehend how uncertainty impacts on the value of real estate investment decisions. The pricing of uncertainty is based on the risk-free hedge security conception. These are best examined at the micro level of the investment in a real estate development opportunity on vacant land.

Nevertheless, the real estate sectors in Singapore and Asia offer promising prospects since the Asian currency crisis of 1997. It is now timely to take stock and make an assessment of how the sectors would pan out for the future, Ill into at least rest the next century.

I are very pleased to present our thinking and research in international real estate with particular emphasis on Asia. The region’s vast potential for real estate is itself a large incentive for international real estate research and education that has inspired me to document the significant work I have done over the years.

I wish all readers a pleasurable reading of this book, and I thank you sincerely for your support without which the publication of this book would be made all the more difficult.

Dr HO, Kim Hin / David

Honorary Professor

(University of Hertfordshire, UK)

(International Real Estate & Public Policy)

March 2021.

ACKNOWLEDGEMENTS

The author would like to express thisr very sincere appreciation to several kindly friends, who as unique and talented individuals, have provided valuable assistance in the initial analysis of the various studies for the chapters of this book. They also form a good resource pool of information. Their co-operation, insights, interest and patience have made this book possible. They include Dr Christopher SHUN Kong Leng, Group Deputy Managing Director of Menang Corporation (Malaysia) Berhad; Ms Candice Loo and Ms June Yang Ii Yuan for Chapter 1; Mr Arunagin Sugumaran and Ms Kuah Bao Ii for Chapter 4; Mr Xia Zhiqiang for Chapter 5; Ms Lee Hung Yunn for Chapter 6; Mr Patrick Poh Eng Tat fo Chapter 9; Ms Stacy Lim Gek Khim, Ms He YunFan and Dr Kwame Addae-Dapaah for Chapter 10; and Dr Sun JingBo for Chapter 12.

CHAPTER 1

INVESTMENT ANALYSIS AND REAL

ESTATE MARKET ANALYSIS (REMA)

The Integrated Resort at Marina Bay, Singapore

Introduction

This section of Chapter 1 takes a close look at the structural behaviour of strategic large real estate development projects like the Integrated Resort (IR) at Singapore’s Marina Bay, in the Marina South CBD. It is uniquely affected by the dynamic interaction among exogenous and endogenous forces that include real estate demand-supply conditions; institutional polices, market structure and attractiveness. By combining a rigorous real estate market analysis (REMA) on Singapore’s first and possibly the largest strategic mixed use development, the Integrated IR at Marina Bay, and adopting quantitative research methods like the discounted cash flow (DCF) model and the Monte Carlo risk simulation analysis, this section sets to determine the sustained viability of the IR. The REMA offers a rigorous analytical frame work for in-depth analysis of the direct real estate performance, and subsequently serves to support a unique DCF model, estimated for structuring the viable closure of a potential and large direct real estate development project. It also evaluates the broader impacts of related macroeconomic institutional policies, plans and other intrinsic factors that may well influence the direct real estate sector(s) of interest. These impacts are empirically validated in the estimated DCF model, scenario and sensitivity analysis that explicate the required risk-return characteristics for the IR, and the corresponding marketing and risk management strategies.

The real estate market for large mixed-use developments like the integrated resort requires the integration of three or more revenue producing and development uses. The uses within the Integrated Resort (IR) at Marina bay must be intensively connected and mutually supportive. Such a unique integration can be realized through a coherent urban design plan that is supported by government policies and relevant macroeconomic factors. The IR at Marina Bay, whose winning bid was secured by US-based Las Vegas Sands, is in fact a strategic and large mixed-use real estate development that will substantially boost Singapore’s tourism and service industries. Another observable output will be the substantial addition to the stock of direct real estate space, as the IR at Marina Bay will accommodate casino operations and many other amenities that include hotels, serviced apartments, restaurants, convention centres, theatres, museums and theme parks. Favourable economic outcomes will include sustainable job creation and investment inflow (foreign and domestic). In addition, there will be the multiplier or ‘flow-on’ effects into all other sectors of the Singapore economy, in particular the office sector, the high-end residential sector and the leisure-related industries like retail and entertainment. The integrated resort will be a centerpiece of the Marina Bay landscape by 2010. It will be the first, unique mixed-use and iconic development in Singapore, achieving global excellence in architectural design to enhance the city skyline and to augment Singapore’s role as the business and financial hub in Asia.

Hence, the section seeks to investigate the success factors of the IR at Marina Bay in terms of its physical and financial aspects as well as to establish the risk factors, which influence the sustainable viability of the IR. A key objective is to analyze how a strategic and large mixed-use real estate development like the IR at Marina Bay can be affected by relevant macroeconomic factors, real estate market conditions (i.e. demand and supply) and related government policies. Another objective is to establish the corresponding risk factors so as to determine the sustainable viability of the IR at Marina Bay. This paper covers an in-depth real estate market analysis (REMA) comprising current market conditions, projected ones and the corresponding structural behavior of key real estate sectors, from the decision to build the strategic and mixed-use integrated resort in 2005, to the construction period from 2006 to 2009, and beyond when the integrated resort is completed. The REMA examines the macroeconomic conditions and their influence on the structural behavior of three key real estate sectors, namely, retail real estate, hotel and entertainment real estate that together affect the sustainable viability of the IR at Marina Bay.

In addition, appropriate marketing strategies and risk management solutions are examined to enable real estate wealth creation and management for the stakeholders. A quantitative approach is adopted involving a projected discounted cash flow (DCF) analysis of the integrated resort, in order to estimate its net present value (NPV) and internal rate of return (IRR). A risk analysis is subsequently conducted under Monte Carlo risk simulation. The required data is obtained from local and international primary data sources, and from secondary private and institutional data sources. As a result, this paper envisages that:

(i) The IR at Marina Bay is financially viable with a high IRR of between 15% and 20% on a risk-adjusted basis.

(ii) The local market structure provides an attractive and conducive environment for the sustainability of the IR at Marina Bay.

(iii) The IR at Marina Bay is a viable and sustainable investment in the long term.

The Related Literature

This part of the section seeks to provide a critical review of the existing literature on the related market structure, including the relevant institutional requirements and intrinsic factors, for a project like the Integrated Resort at Marina Bay to be viable. Macroeconomic factors in the four-quadrant model approach by DiPasquale and Wheaton (1992) are taken into consideration to provide a more complete analysis of the viability requirements and risks involved. Thereafter, the research hypothesis and the theoretical framework of analysis are conceptualised from the literature review.

With increasing financial sophistication and use of computer technology, Ryan and Ryan (2002) survey results show that the NPV and IRR are preferred over all other capital budgeting methods. Additionally, firms with larger capital budget favor the NPV and IRR with the vast majority of respondents agreeing that WACC is the best starting point to determine the appropriate discount rate. Popular supplemental methods include sensitivity analysis, scenario analysis, inflation adjusted cash flows, economic value added, and incremental IRR. IRR is that internal rate of return that yields a net present value of zero. A project is feasible if the IRR is greater than the interest rate one can borrow at. The overwhelming majority of published research (see Williams, 1970; Fremgen, 1973; Brigham, 1975; Petry, 1975; Petty, Scott, and Bird, 1975; Gitman and Forrester, 1977; Oblak and Helm, Jr., 1980; Hendricks, 1983; Ross, 1986.970), indicates that management prefers the use of the IRR over all other capital budgeting methods. Interestingly, throughout the literature, NPV has always trailed IRR in management’s preference as the perception of a percentage return is more easily understood and comparable than an absolute dollar value increase in shareholder wealth. Therefore, management had chosen IRR over NPV. Evans and Forbes (1993) argue that management views the IRR as a more cognitively efficient measure of comparison. In past studies, it is observed that management is moving toward the NPV as a method of choice but not so for the IRR.

13328.png

The net present value (NPV) is the discounting of future cash flows for an investment at the desired rate of return after deduction of the initial outlay. A positive NPV indicates that the investment should be accepted as it will increase the investor’s wealth as the project itself is a profitable one. Academicians have argued for the superiority of NPV over IRR for several reasons. First, NPV presents the expected change in shareholder wealth given a set of projected cash flows and a discount rate. For mutually exclusive projects, there is some disagreement over the appropriate method. Secondly, when cash flows come in over a longer time period, the NPV assumes that the intermediate term cash flows are reinvested at the cost of capital. The IRR, however, assumes that the intermediate term cash flows are reinvested at the IRR, which for any positive NPV project is higher than the cost of capital. Finally, NPV is not sensitive to multiple-sign changes in the cash flows. It is a model that presents the expected dollar amount that the shareholder wealth will increase or decrease upon the acceptance of a project. The NPV model is the approach for capital budgeting decisions preferred by academicians but investment practitioners seem to desire a yield-based technique for pragmatic decisions. (see McDaniel et al, 1998).

25927.png

Local Market Structure & Attractiveness

Accessibility & Infrastructure

According to Rephann et al (1994), regional characteristics help to determine the overall economic effect of a casino. Communities that are more accessible to potential tourists and regions with good transportation infrastructure, are found to be more attractive as sites for casino development. Because of recreational service complementarities (cultural heritage, theme parks, etc), communities that have existing recreational endowments can market these attractions in combination with casino gaming to increase their market share. Finally, areas that provide other needed service sector inputs competitively, such as skilled labor, low-paid labor, good public services, amenities, etc, are more promising candidates for casino investment.

Staffing

However, communities that do succeed in attracting substantial development may fail to realize all of the benefits because local labor markets are unable to supply the new industry with the trained professionals it needs. According to Koh (2004), certain types of casino jobs such as card dealers and gaming operators require specific skills, and initially the employment of skilled operators from overseas would be necessary in Singapore’s case. Hence, the impact on employment and staffing might be smaller initially.

Government, Legislation & Policies

The success of introducing casino gaming as an economic development and fiscal tool in any state also hinges on a well-coordinated development plan, involving the state and the private sector, and it requires the provision of non-gaming tourist attractions (see Madhusudhan, 1996). State laws that restrict casino operations can have a detrimental effect on the competitiveness of state casinos (see Eadington. 1995a, 1995b, 1995c). The associated rationale is to reduce some of the social externalities, like crime and compulsive gambling, which are deemed to be associated with casino gambling. However, these restrictions can make the sites less attractive for all types of potential gamblers, and may further loosen linkages with the local economies. According to Teske and Sur (1991), it is very difficult for a city without a history of strong political infrastructure to manage such a rapid change. Potential spill-over benefits from gambling creates a vital need for city and state cooperation. For development to succeed in more than narrow terms and to benefit most city residents, the political infrastructure is as important as the economic infrastructure. While it is not conclusive to state that a competent and stable regime will do better, there is a need for coherent administrative policies. Rowley (1996) highlights that the central government needs to acknowledge the special problems and opportunities of mixed-use development entails, and to take these into account when considering applications for gap financing and other forms of grant aid. Central government needs to review the opportunities for creating tax regimes that support mixed-use development. Thus, the viability of mixed-use developments may require more control if developers investors and occupiers are to be given the confidence and certainty they seek. Planners also need to promote mixed-use development through conducive development plans and development briefs but should target policies onto key sites and localities. Planning policies should be conducted in a flexible and responsive manner, using all provisions of the existing planning legislation; and should work in partnership with developers, investors and the local community whenever mixed-use development opportunities arise.

As a result, Rowley (1996) states that in promoting and maintaining a more integrated built environment, necessary resources have to be so directed through market processes and public fiscal policy, incentives, subsidies and taxes. This will only happen if the framework of cultural ideas and values, within which development operates, has fundamentally changed (as subsequently illustrated in Fig 1.1). However, planning policy remains an integral element of this framework.

Fig. 1.1 A conceptual model of mixed land use and development

3.JPG

(Source: Authors, 2007 and 2012)

On critical mass, Enani and Keene (1998) mentions there should be a minimum critical mass for mixed-use developments to create the requisite public image and market penetration, necessary for success and conformance with a development strategy as well as a coherent plan (which frequently stipulates the type and scale of uses, permitted densities and related items). On project design and management, Rowley (1996) reiterates that for a mixed-use development to be successful, it will depend on the design and management team. Developers and designers need to study and learn from the lessons of completed mixed-use developments at home and abroad; to develop a ‘new breed’ of multi-skilled specialist teams and organizations with the experience and expertise in resolving special problems and the requirements of mixed-use development; to take more account of the longer term issues of occupation, management and the costs of use; and to work in partnership with investors, prospective occupiers, planners and the local community. Goodman (1994) agrees that if the development cannibalizes native enterprises, then it may create additional problems that require due redress. This occurs when local establishments are driven out of business as such mixed use developments are often full-service complexes that offer food service, retail marketing, lodging and other services, resulting in native enterprises being vulnerable to the competition. Thus, Singapore’s resort-casino is likely to be operating on a similar business model of that of ‘The Atlantis’ and ‘The Bellagio’, and to compete in the international destination resort market that feature gaming, hotel, dining, entertainment, retail and other resort amenities. The design of such a development will have a more significant impact and be more diversified. Hence, to ensure the viability of a casino development, management should assess the desirability of a casino within the framework of an overall long-term tourism development strategy.

Macroeconomic Factors &Interaction with Real Estate Space

The Stock-Flow Model of DiPasquale and Wheaton (1992) in Fig 1.2 provides a simultaneous intuitive analysis of the (dis)equilibrium dynamics between the real estate space, asset and development markets in an economy.

Fig. 1.2 Stock-Flow Model by DiPasquale and Wheaton (1992)

4.jpg

(Source: Authors, 2007 and 2012)

Since real estate is a durable good, its production and price are determined in an asset or capital market. An increase in demand to own assets will raise price while a greater supply of space will depress price. The link between the markets for assets and real estate occurs at two junctions. First, rent levels determined in the real estate market are central to determining the demand for real assets, as investors are purchasing a current or future income stream when they acquire an asset. The second link between the two markets occurs through the construction sector. If construction increases and the supply of assets grow, not only are prices driven down in the asset market but rents decline in the real estate market. These connections between the two markets are illustrated in the 4-quadrant illustration of Fig 1.2. However, the model’s limitations is that it does not trace the intermediate steps as the market moves to its new equilibrium, because the task of depicting the intermediate market adjustments would require a dynamic system of equations that would complicate the analysis. Further research by Wheaton (1999) shows that real estate investment is not a uniform sector within the economy, and that market behavior and investment performance can be fundamentally different across real estate types. Even small difference in durability among real estate types can result in considerable differences in the market potential for instability.

Asset pricing in turn is influenced by the market capitalization (cap) rate of real estate, measuring the direct positive ratio of asset rent-to-price. It encapsulates the opportunity cost of capital, future expectations and risk perceptions of investors. It also measures the current yield that investors demand in order to hold real estate assets. On the new supply of real estate assets, this will depend on the price of those assets relative to the cost of replacing or constructing them. In the long run, the asset market should equate market prices with replacement costs. In the short run, however, the two may diverge significantly because of lags and delays that are inherent in the construction process. On rent determination, the demand for space will depend on rent and other exogenous economic factors like firm production levels, income or the number of households. With fixed supply, rents will rise.

The task of the real estate market is to determine a rent level at which the demand for space equals the supply of space. On the corresponding stock adjustment, it starts with an existing stock and the real estate or development market determines rent as it interacts with spatial demand in the space market. Interactions between rent and asset-pricing cap rates will determine the asset price. This interaction develops towards a comparison between replacement cost and price, which then influences the development decision to add new construction. As a result, the viability of a development can be gauged from many aspects, namely the financial models, local market structure and attractiveness, the project’s intrinsic factors and macroeconomic factors. These various aspects are the critical influencing factors of a development like the IR at Marina Bay.

While finance theory determines the viability through the adoption of the NPV and IRR models, the local market provides an imperative supporting role in the sustainability of a large and complex development project like the IR at Marina Bay. Communities should therefore realize that the casino industry is envisaged to be an economic development gamble. Some regions are better situated for the inevitable next round of competition than others, even if it is not painfully obvious yet. As gaming activity expands and a uniform body of federal statutory law develops, casino communities will find themselves dangerously exposed to outside competition. If a community should want to avoid the booms and busts of casino development, it should assess its prospects realistically, and it should appraise the desirability of a casino within the framework of an overall long-term tourism development strategy. The IR developments project’s intrinsic factors are just as crucial to its success, it is Singapore’s first. Macroeconomic factors, as illustrated by the stock-flow model of DiPasquale and Wheaton, altogether provide an appropriate approach to explain the fundamental equilibrium, which then adjusts the dynamics and interactions of real estate space, the asset and development market through short-term adjustments in rent, price and construction.

The Theoretical Framework of Analysis (TFA)

The TFA is divided into four principal aspects that are investigated and summarized as broadly defined in eq (1.3) and depicted in Fig 1.3. Eq (1.3)’s structural relationship attributes the viability of the large and complex integrated project (IR) is a function of the

• Financial Aspect;

• Local Market Structure & Attractiveness;

• Risk Analysis; and

• Marketing Strategies.

25940.png

The TFA of Fig 1.3 essentially links the underlying macroeconomic and microeconomic factors to highlight their interactions that ultimately influence the sustainability of the physical development of the IR itself at Marina Bay, and the sustainable viability of that IR. The 4 principal aspects of TFA are briefly discussed below.

The Financial Aspect

The financial aspect is concerned with financial models to enable investment analysis and the underwriting parameters, obtainable from the corresponding REMA (real estate market analysis). The REMA provides the reality check that envisages the complex and large ‘IR at Marina Bay’ development project to require a total investment cost of about S$5.05 billion, of which about S$1.2 billion contribute to the land cost. For practical purposes and risk taking, the required capital structure comprises the debt-to-equity ratio of 0.8, interest rate that is realistically set at 2% p.a. with and an expected revenue being set at about S$3.4 billion p.a. in conjunction with a growth rate of 10%, a 15% casino tax rate. DCF analysis is adopted to model the NPV and IRR whose empirical results NPV and IRR models are made to compete with the investment hurdle rate, in order for the large and complex IR at Marina Bay to be a sustainable and financially viable development project. On risk management, the resultant analysis adopts the scenario analysis model, the Monte Carlo risk simulation model and the sensitivity analysis model.

Local Market Structure & Attractiveness

The aspect of local market structure and attractiveness is concerned with investigating the physical and non-physical dimensions of the local market in relation to the success of the IR at Marina Bay over the long run. The physical dimension includes infrastructural provision, required manpower expertise and the issue of a critical mass issue, while the non-physical dimension includes the need for good governance and political stability. The physical dimension plays an imperative and supportive role for the large and complex IR development project in terms of creating the desired accessibility, an efficient circulation of traffic through good urban planning, the desired critical scale of the IR development project and a readily available manpower expertise. The non-physical dimension plays a more facilitating role through the use of relevant public policies and legislation at the urban level in terms of creating an attractive environment for domestic and international investors. Such a role helps to averts market failure in a substantial way.

Risk Analysis

The risks inherent in the large and complex IR-at-Marina-Bay development project are firstly of a macroeconomic nature, which include the corresponding changes in demand and supply, political risk, inflation risk and market competition. Secondly, the inherent risks are of a microeconomic nature, which include the changes in regulation and project risk. As such, it is important to know these inherent risks so as to prepare for them before they occur and to make the appropriate alternative plans to adapt to changing risks. To effectively manage financial, it is usual to adopt scenario analysis and Monte Carlo risk simulation. These model approaches help to ascertain what the financial outcome(s) will be in the optimistic and pessimistic scenarios under scenario analysis; and which factors (like operating expense, interest rate, etc.) are likely to exert a larger influence than the other factors when assessing the sustainable and financial feasibility of the large and complex IR-at-Marina-Bay development project. The Monte Carlo risk simulation model adopts a multivariate regression analysis to determine which variables will affect the selected target (output) variables, arising from a set of ‘riskified’ input variables whose values are sampled from specific statistical distribution functions. The ensuing probability distributions of the input variables may well be assumed to follow the Gaussian normal distribution. After selecting the input and target variables, the risk simulation model is run for over 1000 iterations for e.g. to obtain the results for risk analysis and the recommendations for risk management.

26297.png

Marketing Strategies

Marketing strategies can make or break a direct real estate asset, performance wise even if these strategies are well conceived and well suited to the country in context. With the right marketing strategies, direct real estates can become profitable on a sustainable basis over the long run. Hence, it is important to market the large and complex IR-at-Marina-Bay development project in a way that caters to the needs of the target market. It is also vital to consider the cultural aspects of the country and region. In the case of the IR project, the factors to consider include the target group of customers, the tenant mix and the marketing channels to be deployed. On the real estate market analysis (REMA) and from Table 1.1, it is readily evident that on the whole the various market structure and attractiveness factors for Singapore’s direct real estate market are very conducive. These factors are highly positive to enhance the direct real estate market’s prospects, enabling it to be well positioned to address any regional competition. Nevertheless and in the regional context, Singapore’s hotel prices remain very competitive while retail real estate can be expanded to match those in the Asia region.

Gaming wise, Macau’s casinos do not pose a severe threat as they target a different type of tourist – the consummate gambling tourist. Singapore will have the largest convention and entertainment space in the region once the IR-at-Marina development project is completed and commissioned. Overall, the real estate market outlook for Singapore is positive, with the government being actively involved in attracting tourism revenue and all the direct real estate sectors are expected to have a positive annual growth over the long run from international, regional and local demand. The only problem is the internal issue of labor and staffing where expertise may well be much more required for the smooth running of the IR-at-Marina-Bay development project on a sustainable basis. It will probably be a matter of time that once the IR development project is up and running, the pertinent question to pose is whether or not local manpower resources can match the skill intensive requirements of this large and complex project, given Singapore’s emphasis on training and knowledge-based workers?

Table 1.1 Summary of Market Structure & Attractiveness Factors

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Marketing Strategy Results

With the right marketing strategies, even direct real estate assets will become profitable as mentioned earlier. Hence, IR operators must have the ‘software’ know-how to market the resort extensively and to put into effect the world-view of Singapore as a global tourist destination. This ‘software’ know-how involves high-end, innovative marketing and distribution that secure international prime-time media coverage, and the access to an exclusive network of top artists and performers like securing world-famous celebrities that can attract the services of top-rated TV executives and film makers. This maximizes the global exposure of an IR destination of interest, and ensuring that this kind of exposure is one of the first things that come to people’s minds when they plan their vacation. Such ‘software’ know-how will greatly boost our own efforts at branding Singapore so that it can be recognized as a leading city in the Asia-Pacific region, in the likes of the global cities of New York, Paris and London. It is widely accepted that major marketing management decisions can be classified in one of the four following categories, which together are often known as the marketing mix or the 4Ps of marketing.

• Product

• Price

• Place

• Promotion

Product

The Integrated Resort at Marina Bay is the first of its kind - an iconic development at Marina Bay. The design provides a memorable image for Marina Bay with distinctive design elements including a sculptural wave like the roof forms of the low rise components (containing the meetings, incentives, conventions and exhibitions, MICE, facilities, casinos and theatres); the Sky Park above the hotel towers and the Art-Science Museum. The grouping of the three hotel howers, together with the Sky Park, forms a powerful silhouette and a strong gateway image for Marina Bay.

On changing Business Model and like other major gaming companies, the IR at Marina Bay is moving towards the integrated resort-casino concept, providing entertainment, retail, food and beverage outlets, and hotel facilities to cater to conventions and corporate travelers. The casino complex is no longer just a single-use development project but a combination of several other activities in the like of the Guggenheim Museum at the Venetian. Singapore’s own concept of an integrated resort (IR) reflects this trend.

Price

- Hotel Room Rates

Utilizing average room rates from local five-star hotels in the vicinity such as the Ritz Carlton Hotel (with its most prestigious suite at S$1,500 per night) and the Fullerton Hotel (with its most prestigious suite being much higher at S$2,000 per night), an average five-star plus hotel average daily room rate is estimated to be between S$1,500 and S$2,000 per night. Similarly, a normal five-star suite is estimated to cost half the price at S$800/night.

- Retail Rents

According to a Las Vegas Sands senior executive, retail rents for the IR-at-Marina-Bay development project will be higher than those in the prime Orchard Road retail belt (where the average rent is about S$38.10 per square feet per month). Therefore, an average retail rent for the IR at Marina Bay of S$40 per square feet per month is adopted.

Place

The IR-at-Marina-Bay development project is located at the heart of the Marina Bay area, which is envisaged to be the international business and financial hub over the long term of the next 10-15 years. (Appendix B). The scale of this development project is very large, with a site area is 20.6 hectare and a gross floor area of between 570,000 sq m and 270,000 sqm. The land tenure is for 60 years. The Integrated Resort is therefore expected to be sustainable physical development complex that will enhance Singapore’s position as a leading destination for MICE activities. The MICE facilities for the IR at Marina Bay will complement such facilities in the Marina Bay area. In addition, the range of night entertainment activities provided by the IR at Marina Bay will serve to be a strong draw for MICE activities on the whole. Together, the cluster of hotel rooms within the Marina South CBD, the availability of major MICE infrastructure at the IR-at-Marina-Bay development project and the presence of major transport networks in the vicinity, then this large and complex will benefit from agglomeration economies of scale. Such a favorable outcome will be a unique selling point for Singapore.

Promotion

- Target Market

According to Singapore’s Prime Minister Lee Hsien Loong, the IR at Marina Bay is suitable for large-scale business and convention facilities of global excellence. The appropriate target market will be the MICE visitors who come for meetings, incentive tours, conventions and exhibitions at the international level. The visitors form a high value market because MICE visitors spend much more per person than other tourists.

- Mode of Promotion

There will be an official website and this will be used as an advertising tool to create awareness among the potential tenants and visitors, especially the MICE visitors who are the main target group. This website will showcase the available facilities within the various components in the IR at Marina Bay. There will be the use of personal selling to potential tenants and investors. Public relations will need to develop programs to promote the image of the integrated resort. Lastly, the use of effective advertising will help to develop the image through the use of media advertising like bus mounted panel, mass rapid transit posters, television coverage, the press media and billboards.

Investment Analysis Model Estimations

The project is expected to incur a very large and total investment cost of S$ 5.05 billion. Of this, about S$1.2 billion (with S$1.3 billion being attributed to tax and stamp duty) contribute to the land cost while construction cost and relevant fees approximate to S$3.85 billion. A discounted cash flow (DCF) analytical approach is adopted to model the large and complex IR-at-Marina-Bay development project, in order to ascertain its sustainable profitability and viability in the long term. Subsequently, a sensitivity analysis is conducted to show the sensitivity of each targeted output variable to the input distributions for the various cash flow statements of interests, to be followed by recommended strategies to minimize investment risks.

DCF Facts and Assumptions

Land cost is set at S$1.2 billion inclusive of stamp duty. The development period is assumed to be 4 years while the legal and professional fees are set at 7% of the total construction cost. Land cost and 20% of construction cost is assumed to fully paid in the first year without loan borrowings. The financing cost of the remaining 80% of the total construction cost is assumed to be 2% p.a. with ensuing payment to be spread out over 8 years. The casino license fee is set at about S$12.5 million per year based on Merrill Lynch (Singapore) investment research reports. Marketing and promotional fees are assumed to be 3% of total revenue. The annual property tax payable during the construction period is to be incorporated into the total construction cost, whereas property tax is to be payable when the development is operational and is to be incorporated into the operating expenses. The corporate tax rate is assumed to be 21% while the goods and service tax (GST) is at 7%, assuming both are to take effect before 2008. The NPV is to be discounted at 13%, the typical investment hurdle rate for a reasonably good local direct real estate investment that should be usually able to bring back a return of around 9% to 13%.

Cash Outflow Components

- Hotel construction cost

The hotel construction cost is expected to be a high cost development, as the hotel towers are of the 5-star plus international grade quality. Hence, an upward adjustment to S$4,000 per sqm is being adopted to construct the hotel. (Refer to Appendix C on the construction cost.)

Table 1.2 Construction cost for hotels (Source: Davis Langdon and Seah)

(Source: Authors, 2007 and 2012)

- Other construction cost estimates

Other construction cost estimates are based on the Merrill Lynch estimates in Table 1.3. Upwards adjustments are made to some of the components to reflect the changes in gross floor area and rising construction costs since 2005.

Table 1.3 Projected development cost

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(Source: Merrill Lynch, 2005; Aurthors, 2012)

- Operating Expenses

Operating expenses are assumed to include the repair and maintenance of the whole development, building insurance (3rd party and for fire) and property tax. The operating expenses, as presented in Table 1.4 and utilized for the DCF analytical approach, amount to 60% of the total revenue, based on the calculations of the average operating expenses in the financial statements from the 2005 annual report of Las Vegas Sands Corporation, the owner of the IR-at-Marina-Bay development project.

Table 1.4 Proportion of operating expenses of total revenue

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(Source: Merrill Lynch, 2005; Authors, 2012)

Cash Inflow Components

- Casino Revenue

Based on the Merrill Lynch report, it is estimated that the casino component will generate about S$3.4 billion in the first year. A 10% growth rate is assumed as this reflects the steady state development of the IR-at-Marina-Bay development project, which is supported by a major gaming feasibility study in Macau. This 10% growth rate is reasonable on practical grounds as Singapore’s Marina Bay casino should be at least as good, if not better than the Macau’s casino operations assuming there is no credit crunch and the exchange rate is stable.

- Hotel and BTMICE revenues

According to Jones Lang LaSalle Hotel reports, based in Singapore, the average five-star hotel occupancy is around 77.7% as of 2005. With tourist arrivals growing by 5%-7% p.a., but with the hotel rooms growing by around 2% p.a. until 2009, then hotel occupancies are expected to be very tight. As such, UBS investment research reports that the hotel room rates should increase steadily by 10%-15% p.a. till 2010. Beyond 2010, hotel growth rates are anticipated to reach a steady state of 15% while an occupancy rate of 80% is anticipated to be cautiously optimistic. Utilizing average daily room rates (ADR) from five-star hotels in the vicinity like the Ritz Carlton Hotel and the Fullerton Hotel, they work out to an average of S$584 million in hotel revenue for 2010. The BTMICE sector accounts for approximately 30% or S$3 billion of total tourism receipts in 2004. The Singapore Tourism Board (STB) aims to substantially raise the BTMICE sector’s contribution to at least 35% or S$10.5 billion by 2015. This translates into an average annual growth rate of 15% p.a. over the long term of the next ten years.

- Retail Revenue

The retail component is calculated utilizing average retail market rents in the prime Orchard road retail belt. The average rent per square feet per month according to Knight Frank data is about S$38.10 as shown in Table 1.5. Rental rents in premium retail malls like ‘The Paragon Shopping Centre’ can fetch up to S$50-S$55 per sq ft per mth for shops with the street view. According to a Las Vegas Sands senior executive, retail rents for the large and complex IR-at-Marina-Bay development project will be higher than those in Orchard road retail belt. Thus, an average of S$40 retail rent per sq feet per month is adopted, coupled with a building efficiency factor of 0.8. UBS investment research reports that retail rents are expected to grow by 3-5% p.a. from 2007 to 2010. Subsequently, retail rents are anticipated to reach a steady state growth of 4% on average.

Table 1.5 Rentals of Shopping Centre space

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(Source: Authors, 2007 and 2012)

- Food and Beverage Revenue

Food and beverage (F & B) rents are assumed to come under the retail component, as they are integral to any major shopping centres. Based on the Las Vegas Sands Corporation 2005 Annual Report, the F & B component in Table 1.6 generally makes up about 8% of the total revenue. Thus, the same proportion of the total revenue and the growth rate of retail rents are adopted in the DCF analytical approach.

Table 1.6 Proportion of food and beverage of total revenue

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(Source: Authors, 2007 and 2012)

- Other Leisure-Offerings Revenue

Other leisure offerings include 2 theatres and an amphitheatre, which earn a revenue that is comparable to that of neighbouring ‘Esplanade - Theatres by the Bay’, which has a comparable capacity size. Growth rate for these leisure offerings are set at 10% p.a., assuming that it is the same as the prevailing growth rate of Esplanade. As for the new ‘Event Plaza’ and ‘Sky Park’, they are assumed to be public spaces and no entrance fee is charged. However, there will be retail space in these new places and they have been accounted for in the retail component.

Risk Analysis Model Estimations

This section discusses the variables that affect the NPV and IRR model estimations through 2 methods: scenario analysis and sensitivity analysis. A scenario analysis involves 3 types of possible outcomes (optimistic, most probable, and pessimistic), and in which the values for the input variables of interest significantly contribute to an exceptionally high or low NPV or IFF. The sensitivity analysis shows the degree to which the input variables of interest affect the target-output value through the use of Monte Carlo risk model simulation and the corresponding regression analysis, which is represented by a tornado graph.

Scenario Analysis

Selection of variables

The selection of variables as inputs of interest must reflect a certain degree of influence that may impact the targeted outputs (i.e. the NPV and IRR). As presented in Table 1.7, the selected (variable) inputs are construction cost, operating expenses, financing for the construction loan, annual growth rate for the hotel, MICE, food and beverage, gaming, and retail sectors. Under scenario analysis, all the variable inputs are combined to test for the various and achievable NPV and IRR under different scenarios. The results so obtained reveal the highest and lowest possible NPVs and IRRs that can be obtained under optimistic and pessimistic conditions. Under optimistic conditions, the NPV and IRR can be as high as S$804 million and 16.4% respectively, whereas under the pessimistic scenario, the NPV can dip to as low as –S$1.34 billion and the IRR of 5.4%.

Table 1.7 Fixed and Variable Inputs for Scenario Analysis

(Source: Authors, 2007 and 2012)

The NPV and IRR values in Table 7 are inclusive of corporate tax (19%), GST (7%) and the casino tax (15%) with the latter taking up the highest amount of tax payable. The casino tax is estimated by Merrill Lynch (as provided in Appendix D). For additional information, the IRR without the casino tax but inclusive of the corporate tax and GST for the 3 scenarios will be very strong. The IRR for the ‘Most Probable Scenario’ then becomes 16.8% while the IRR for the ‘Optimistic Scenario’ becomes 21.4%. The corresponding IRR for the ‘Pessimistic Scenario’ becomes 11.7% (as provided in Appendix E)

Sensitivity Analysis

A sensitivity analysis is conducted under an excel spreadsheet model to enable the graphical representation of the relationship between selected input and targeted output values. Values utilized are derived from the cash flow incorporating only corporate tax and GST. The same IRR standard deviation will still be generated if the casino tax is incorporated. Subsequently, Monte Carlo simulation is conducted to generate a tornado graph to show the magnitude of the impact of selected input on targeted output values via a multivariate regression analysis. A software program known as @Risk (by Palisade Corporation, USA) is deployed to run the simulation.

Interest Rates for the Construction Loan

Following an increase in the interest rates for the construction loan, there are decreases in the NPV and IRR. The standard deviation for the IRR so obtained in Table 1.8 is 0.00123. In comparison with the results from other selected input variables, it can be derived that the NPV and IRR are moderately sensitive to changes in the interest rates. Changes in NPV and IRR are within the range of S$74,904,000 and 0.34%.

Table 1.8 Sensitivity Analysis on Interest Rates

(Source: Authors, 2007 and 2012)

Fig. 1.4 Sensitivity Analysis on Interest Rates

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(Source: Authors, 2007 and 2012)

Construction Cost

A range of ±3% change in construction cost is utilized used to test the degree of sensitivity on the NPV and IRR and the standard deviation so obtained is 0.00166 in Table 1.9. The relatively high standard deviation implies that the impact of a change in construction cost is relatively large on NPV and IRR. As the gradient of the IRR slope is steeper than that of the NPV, it is explicit that the IRR is more sensitive to changes in construction cost. An increase in 3% of the construction cost has resulted in a decrease of NPV by approximately S$108,000,000 with the IRR decreasing by 0.15%.

Table 1.9 Sensitivity Analysis on the Construction Cost

(Source: Authors, 2007 and 2012)

Fig. 1.5 Sensitivity Analysis on Construction Cost

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(Source: Authors, 2007 and 2012)

Operating Expenses

A range of ±6% change in operating expenses is utilized to test the degree of sensitivity on the NPV and IRR and the standard deviation so obtained is 0.0212 in Table 1.10. The exceptionally high standard deviation implies that the impact of a change in construction cost is very large on the NPV and IRR. As the gradient of the NPV slope is steeper than that of the IRR, it is explicit that the NPV is more sensitive to the changes in construction cost. An increase in 6% of the construction cost has resulted in a decrease of NPV by approximately S$731,000,000 with the IRR decreasing by 3.07%.

Table 1.10 Sensitivity Analysis on the Operating Expenses

(Source: Authors, 2007 and 2012)

Fig. 1.6 Sensitivity Analysis on Operating Expenses

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(Source: Authors, 2007 and 2012)

Annual Growth Rate of the various real estate sectors

The changes in the annual growth rate of the various real estate sectors tend to have low IRR standard deviations and minimal changes in NPV and IRR, with the exception of the hotel and gaming component (see Appendix F). These observations can be attributed to the fact that the total revenue is largely made up of hotel and gaming revenue. Therefore, changes in the growth of hotel and gaming component are likely to impact total revenue to a certain extent, and cause a significant change in the NPV and IRR.

Simulation Results

The probability distributions of the input variables of interest are assumed to follow the Gaussian normal distribution. After selecting the input variables, the simulation is run over 1000 iterations to obtain the results of the risk analysis. The tornado graph of Fig 1.7 shows which input variables have the greatest impact on the targeted output variable. The greater the magnitude of the regression value for the input variable of interest, then the greater the impact on the targeted output value. If the regression value is positive, it means that as the input variables increases so will the targeted output variable. Likewise, if the regression value is negative, it then shows that as the input variable increases so will the targeted output variable decreases. On the basis of the regression sensitivity for the NPV and IRR, it is evident that the NPV and IRR are most sensitive to changes in the operating expenses and the total construction cost, to be followed by gaming, tax, hotel, interest rates, retail, MICE, F&B and theatres with the least sensitivity.

Fig. 1.7 The Regression Sensitivity for NPV and IRR

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(Source: Authors, 2007 and 2012)

Risk Management Strategy Results

In any investment, there will always be risks involved and to enhance shareholder value, there is a need for risk management strategies in order to minimize development risks. The most risky variables (factors) affecting the NPV and IRR are the construction cost and the operating expenses, which are both within the control of Las Vegas Sands Corporation, the principal investor who is also the operator of the large and complex IR-at-Marina-Bay development project. A competent and reliable quantity surveyor should thus be engaged to critically assess the projected materials costs to obtain an optimal cost for the construction. Construction should be completed according to schedule to minimize construction risk, as delays in construction will be costly. There is also a need for the project manager to efficiently manage the project costs, to monitor closely and be up-to-date with every stage of construction in order to prevent any possible lag in the construction schedule. Operating ratios should be effectively managed, as they have a marked impact on the IRR of the IR at Marina Bay.

Factors beyond the direct control of the Las Vegas Sands Corporation will include the interest rates of the construction loan, tax rate and the annual growth rate of the direct real estate sectors. As a result, it is clearly implicit to institutional planners and governmental fiscal policy that in order to reduce the risks of strategic, large and complex developments like the IR-at-Marina-Bay development project, attractive enough corporate tax incentives will be imperative. Strong macroeconomic management policies are deemed to be just as essential to sustain investor confidence over the long run.

Concluding Remarks

Overall, macroeconomic institutional strategies are consistent with and they reinforce the fundamental investment value of the strategic, large and complex development project as they affect the demand for an integrated resort (IR) in the space market. While the Las Vegas Sands Corporation is responsible for the sustainable viability and the physical sustainability over the long run for the IR-at-Marina-Bay development project, the extend to which this IR is anticipated to produce favorable risk-adjusted investment returns and values will depend on adopting the appropriate DCF analytical approach. NPV should therefore be positive and strong enough in conjunction with expected returns to exceed the required returns. So, under condusive direct real estate market conditions and economic conditions that together with supportive institutional strategies can ultimately facilitate the fundamental investment value-adding of the strategic, large and complex real estate development projects like the IR-at-Marina-Bay. The sensitivity analysis accordingly establishes the risky factors, which impinge the IR’s sustainable viability and the physical sustainability in the long term. Hence, there is a critical need for sound macroeconomic institutional policies and highly targeted plans to effectively manage the development risks. On the whole, this paper is undertaken to qualitatively and quantitatively investigate the sustained viability of the IR-at-Marina-Bay development project through the structural behavior of this strategic, large and complex real estate development project in terms of the macroeconomic (demand-supply), and microeconomic (interest rates, rental yields) conditions.

Through the REMA, it is evident that Singapore’s well-established institutional plans provide the spatial infrastructure and they help to create the foundations for human capital and financial support for the wider direct real estate market. The REMA serves as an informative framework to enable an in-depth understanding of the macro and microeconomic structure, to establish the historic performance and to indicate a potential positive outlook for the direct real estate market. In addition, marketing strategies are discussed because they play an essential role in revenue generation for the purposes of the appropriate DCF analytical approach that is adopted to investigate the IR-at-Marina-Bay development project. Evidently, the NPV and IRR model estimations, when combined with scenario analysis, reveal that under optimistic real estate and economic conditions and supportive institutional strategies, can favorably influence the fundamental investment value-adding of the strategic, large and complex IR-at-Marina-Bay development project, within a financial risk-return framework. Finally, the relevant and key risk factors that significantly contribute