Description of Project
The client is a government-owned investment vehicle specialized in real estate development. The project is one of the client’s flagship developments situated right at the center of capital city of a country, with approximately 100 acres in size. In order to carry out the day-to-day operations of the township once it is fully completed, the client wishes to set-up a Special Purpose Vehicle (SPV) as the township manager.
Aspired to be an integrated development with premium status, the client had engaged a multi-disciplinary consultant team to draw up a township management strategy that outlines the delivery and operation model of the township manager. In view of the huge working capital requirement to operate and maintain the township, the client wishes to devise a cost recovery model and revenue strategy that will ensure the operations can be financially sustainable in the long term.
Full Story
The project site of the township is strategically located in the city center of a capital city. This has given it the perfect connectivity and accessibility via multiple transit systems. In order to capitalize on this geographical advantage, the client planned to develop this landbank into an integrated township with balance mixture of commercial, business and residential components. This township is set to be the first-of-its-kind development that has premium status for all of the buildings within its perimeter.
However, this premium status comes with a huge requirement on the cost to operate and maintain various components in the township. This includes the operation & maintenance of infrastructures, maintenance of landscapes & streetscapes, utilities such as electricity & water supply, operation and repair of machines & equipment such as elevators, security within the perimeter, cleaning & waste management as well as emergency response and traffic planning.
The client realized there is an imperative need to strategize a cost recovery model and revenue strategy that could support the working capital requirement. Working with a diverse team of consultants comprises of business strategist, financial planners, engineers and quantity surveyors, the client aspired to draw up a township management strategy that will make the township management financially sustainable in the long term.
Key Outcomes
Leveraging on our internal database and international benchmark on other similar developments globally, the team managed to gather a basket of best practices in terms of delivery model, corporate structure and cost recovery strategy from successfully developments. This information formed a basis for us to design the township management model for the client. Build upon the benchmarking insights, the team had devised a list of services that could be taken up by the township manager in return for a township management fee to be charged on the users of the township.
With the conceptualization of the cost recovery model, the next stage is to work out the numbers that will make this work. To this extent, we built a 30 years full-fledged financial model that captured all business and operations related costs for the township manager. Working with the quantity surveyor and design engineers, we have conducted extensive life-cycle costs analysis to identify areas for cost reduction. In order to identify the development design that will results in optimal quality and working capital requirement, we have conducted a series value engineering workshop with clients, design consultants and costs consultants. We have taken a Design-to-Cost approach to identify a list of cost targets for the big-ticket items. With this information, the design consultants and engineers had clearer direction to optimize the development from design and engineering perspectives.
Another critical facets that would determine the success of this project is the charging mechanism of the township management fee. After the cost profile is computed, the next challenge is to curate a mechanism to distribute the cost to other users of the township. These owners each owned certain component within the township and they will be using all the services provided by the township manager such as infrastructure (roads, bridges, sewerage), utilities (electricity, water, internet), landscape & streetscape et cetera. To this end, we had developed a charging mechanism with varying rates that looked at the building types and size. This has enabled the client to transfer the operating cost to the township users at a fair and transparent manner to prevent any future dispute.
To further improve the financial position of the township manager, the team had developed a basket of revenue generation strategies with innovative placemaking ideas that capitalize on the unique status of the township. This is expected to create additional avenues for the client to bring in sustainable cash flow at minimal capital expenditure.
Important Notice
*We take our clients’ confidentiality seriously. While we keep their names anonymous, the results are real.
*This project was delivered by the core team of 27Group during their tenure in a Netherland-based engineering consulting firm. While it may not deliver under 27Group, we hereby declare that the contents above and our involvement are authentic and genuine.
