University of Colorado

LREI's (Lampard Real Estate Investments) investment in Spain has faced delays due to uncertain economic conditions.
Spain is rebounding from a worldwide recession.
Opportunity for LREI to acquire a major unit in a competitive high street location with low supply and high demand.
The investment committee is expected to provide value and profits for investors from the second fund.
Analysis by Influence Investments (focus on Mercado de Fuencarral) shows a positive outlook to generate value for investors.

The team presents critical components of the deal profile.
Discussion of macro and local market conditions surrounding the retail market in Spain.
Introduction of a unique tenant strategy to secure profits for investors.
Financial considerations will include various scenarios and sensitivity/risk analysis.

Composition: 2,400 square meters of retail on the lower three floors.
Highest and best use for the asset is a single tenant flagship store.
Confidence in Sol delivering the asset in white box condition in two weeks due to their strong motivation to sell.
Current vacancy: low occupation rate of 60% and high tenancy turnover of 33%.

Going in cap rate defined at 6.8%, and potential hold period of one year is discussed.
Going out cap rate analyzed and determined to be 5.6% based on market risks and cap rate volatility.

Location of MDF on Calle De Fuencarral, a major shopping thoroughfare.
Comparison with Grand Via, another major thoroughfare with significant footfall of 21,000 per day.
Proximity to transportation options, including nearby metro stations, increases the asset's value for future tenants and investors.

MDF is considered a unique investment opportunity due to consumer spillover from adjacent districts, e.g., Gran Via Prequodios.
Retail rents in Fuencarral District are approximately 30% lower than in Gran Via, making it attractive for retailers.
Current economic indicators (January - 2015) show positive trends: rising CPI, increased household consumption, and decreased unemployment.
Lifting of the Urban Lease Act of 1965 removes rent controls that will affect both residential and commercial sectors, opening market opportunities.
Investment volume trends for 2015 suggest that around 50% will stem from foreign investments.

Discussion of potential retail tenants:
- Zara: Large retailer; however, unfavorable lease terms make profitability questionable.
- Decathlon: Affordable athletic wear with favorable lease terms, but entering the market as a new tenant may pose brand equity challenges.
- Topshop: Desired tenant with significant international presence; potential for easy disposition, but lacks a corporate guarantee.
Recommendation to secure Topshop, contingent on obtaining corporate guarantee and establishing a 10% profit participation clause in the lease.
If Topshop does not proceed, the recommendation shifts to Decathlon despite lower notoriety as a tenant.

Anticipated returns: 23.8% IRR (Topshop) versus 28.5% IRR (Decathlon).
The expected attractiveness of Topshop as a brand could lead to higher disposition prospects.

Evaluation of financing options for the acquisition with emphasis on debt financing:
- Debt fund and CMBS loan ruled out due to lockout periods.
- Suggested line of credit ($100,000,000 at 2% cost) is not advisable due to recourse features.
- Recommendation to utilize 100% equity for the property acquisition.

Total Required Capital: $15,000,000 for property purchase.
Reserve Funds: $1,500,000 to cover facade improvements and tenant-related obligations.

Conservative disposition price at €32,400,000, resulting in a 5.6% exit cap rate.
Market interest confirmed by pension fund offer indicating investor demand for a flagship Topshop.
Potential returns projected to yield approximately 22% in total.

Emphasis on importance of lease abatements for tenant attraction and corresponding impact on return rate.
Analysis showing how minor changes in cap rates significantly affect IRR metrics; sensitivity conducted with various scenarios.
Identification of three major risks (demand, supply, inflation) which are anticipated to be managed effectively within the market environment.

Reinforcement of strengthening economic indicators in the Spanish market.
Strategic recommendation to secure Topshop as the tenant for MDF.
Preference for equity financing over debt financing due to reduced return volatility.
Financial target set to make €10,700,000 for investor funds within one year hold scenario.

Clarification and questioning around the decision to prioritize Topshop despite higher IRR associated with Decathlon.
Discussion on the rationale behind opting for a one-year hold and overall risk profiles.
Emphasis on effective lease negotiation strategies and market dynamics.
Queries regarding capital rate determination based on Spanish bond market versus retail space performance evaluations.