Someone has contacted us regarding conversion of a building to house two apartments, four bed and breakfast rooms, and a deli.  The building is located on a busy downtown Texas city street (I'll have to allow you to presume Texarkana to keep from naming the city), is currently empty, and has never been used for any of these purposes.  She is speculating that there is possibly a market for these services, but is not certain with regard to the strength of the market.  A drawing of the building will be distributed in class; you are not discuss this project with anyone outside of our class. 

We cannot forecast demand for these services, so estimate the initial marketing feasibility of the project.  The target audience of your report is our client.  Total length of the report, exclusive of appendices, must be no more than five pages of text.  Appendices are to be used for charts, figures, tables, or calculations that would spoil the flow of the written report, but which are necessary to support or substantiate statements that are made in the report.  Do not include an appendix unless it is specifically referenced in the report; appendices that are not referenced will not be read. 

This report must use the following basic outline:

  I. Problem Statement

 II. Situation Analysis

III. Analysis of Alternatives
     A) breakeven using supplied information and assumptions
     B) breakeven using some reasonable set of assumptions
     C) however, breakeven using a better set of assumptions
     D) perhaps one more even better set of assumptions

 IV. Recommendation
 

This is a real world assignment.  The written report will be scored in large part on the professor's perception of the usefulness and acceptability of the report to the real client.  Note that a minimal requirement is that reports be relatively free of problems of grammar, spelling, typing, and such.  Do not fabricate material for the sake of creating a report.  Remember that this is not a creative writing assignment but is a technical writing assignment.
 

GIVEN INFORMATION AND ASSUMPTIONS:

Here is my understanding of the situation:

The building is a solid concrete and brick structure, two floors, with outside dimensions included with the in-class handout.  The property has space for several parking spots in the back, but these are only accessible by traveling through the parking lot of another business.  Local code requires that at least two parking spots be available for each apartment; the owner of the adjacent property has verbally agreed to provide a right of way for access to this parking.  There are a few spaces of on-street parking on the block directly in front of the building, but the building is on the corner of a very high traffic area.  The owners of a vacant lot across the street have agreed to sell or lease at a reasonable price. 

If purchased, the buyer would probably have to borrow $125,000 plus the total of renovation and startup costs.  After renovation, annual property taxes would be at the rate of $2.38 per hundred dollars of value.  Although the structure has historic value, we cannot assume eligibility for any incentives whatsoever, historic or otherwise.  Change to the building would be minimal; building construction is such that stairs and other features meet current code.  All plumbing, electrical, and heating/cooling systems must be replaced, necessitating fir-out of the outside walls.  Two architects have been consulted, and apparently both believe that the building can be renovated for substantially less than the kinds of per-square-foot estimates that are typically listed for historic building renovations.

Our client's hope is to put two large, high-end apartments on the top floor.  She believes that these could be rented as luxury apartments for $1000 to $1400 per month to professionals who work in the downtown area.  A common area for meetings and such would separate the apartments in the middle foyer.  Four bed and breakfast rooms would be on the first floor.  The intention is to rent these first-floor rooms on a weekly basis to attorneys or other professionals who are in town to work for a few weeks at a time.  The first floor would also house a small deli, a small art gallery, and a small lounge area. The deli would serve rental clients as well as professionals who work downtown.  The first-floor lounge would have internet connections and could be used by patrons. 

You will have to make assumptions about construction costs, operating costs, and employee costs.  Be sure that your assumptions regarding costs and the marketing environment are clearly stated and substantiated.  For the sake of this assignment, make assumptions as if the building is located in Texarkana; any differences in the marketing environment would probably not make a substantial difference in the outcome of analysis.