P1/B2

Proposal for 50% partnership

This is a brief intro to my proposal for a 50% partnership in my company (Magna Conversa Unipessoal Lda)

that owns a 8.2Ha property in Vale Martim Afonso Sul, Grândola, Portugal

The property has been cleared and fenced, has a water well and electricity, and the main infrastructures for developing a "Tourismo Rural" Project already in place as you can see at the following link

http://valmartimafonsosul.blogspot.com/2015/11/building-infrastuctures.html

Moreover, there's already a glass cabin of 124m2 

Please check the link here below for more details

https://montedagala.blogspot.com/2018/05/p1-cabana.html

and a barn of 60m2 that can be converted into a living space

Please check the link here below for more details

http://valmartimafonsosul.blogspot.com/2015/06/building-master-bedroom.html

As long as there are no official statistics re the real estate market sales in the greater Comporta area, in the process of setting a price for my property I took as a reference and have analyzed the asking prices of relatively similar properties in the sale portfolios of three of the main realtors operating in this area: 

with the first real estate agency, I have selected 41 properties and the average asking price per hectare is €113,982; with the second REA I have selected 23 properties and the average asking price per hectare is €158.311; with the third REA I have selected 16 properties and the average asking price per hectare is €182.053; the final average asking price taking in account the three REA altogether is €151.448 per hectare. In this regard it is important to consider that very few of the eighty properties selected have a ruin registered to the cadastre that gives the right to build a house of 500m2, all the rest have no ruins or houses, therefore, the only way to get a license to build for the buyer would be registering itself as a farmer and having at least 25% income coming from agriculture or making a "Tourism Project". My property has already a house and a barn that gives the right to build an extra 376m2 up to a total of 500m2 for residential use and, as said already, has been cleared fenced and infrastructured, this justifies the price difference per hectare of €31.479 higher than the average asking price of the properties selected as a reference.

The spreadsheet here below shows exactly how I have set the price for my property and my offer for a 50% partnership

As long as I'd be much happier to find a partner to complete my project rather than selling, I'm willing to lower the evaluation of my property of €100.000 (6,25%), therefore, the value would go down from €1.600.000 to €1.500.000. 

Anyone interested in this partnership would buy 50% of the company shares for €750.000, then we would have to finance a capital increase of €1.000.000 (50/50 - €500.000 each) to build the house of plot 2, the total outlay for the new partner would then be €1.250.000.

Here below the investment road map for the new shareholder:

• the new shareholder will pay 50% of the shares € 750,000

• plus the capital increase quota € 500,000 in the form of a loan to the company, with a total expenditure of € 1,250,000. 

• the capital increase of 1M € will cover the costs of the first phase of the works (€ 894,768) with a balance of (€ 1,000,000 - € 894,768) = € 105,232. 

• this balance plus the 3M € public funds cover expenses for the completion of the works and the project. 

• the sale of the (P2) house (€ 1,491,300 * 0.5 = € 745,650), reimburses shareholders for the capital increase loan and reduces the new partner's total investment (€ 1,250,000 - € 745,650 = € 504,350). 

• the rental income quota (€ 345,000 * 0.5 = € 172,500) in relation to the partner's final investment balance (€ 504,350) shows a  34.20% ROI after the liquidation of all loans (50% shareholders quotas € 500.000*2 + 1,5M € bank loan = 2,5M €).

• the investment residual balance will be paid back in (€ 504,350 / € 172,500)= 2,92 years.

• in case the new shareholder will buy the house (P2) for € 1,491,300 his total investment at this point will be (€ 1,491,300 + € 504,350) = € 1,995,650.

• his annual rental income quota of (€ 345,000 * 0.5) = € 172,500 gives a 8,64% ROI and will pay back the total investment in (€ 1,995,650 / € 172,500) = 11,57 years. 

• the company, with this project, should be worth € 1,616,449, according to the projected profitability (€ 344,846 / 0.085 + € 1,491,300 - € 3,931,863), considering a capital cost of 8.5%, according to the reference average cost of capital for Europe for the hotel sector, and will present a theoretical return for equity, after debt settlement, above 20% (€ 344,846 / 1.5M €).

See chart here below:

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For the project overview please check the link here below.

https://montedagala.blogspot.com/2020/09/monte-da-gala-project-overview.html

N.B. This project was initially supposed to be built as "Hotel Rural", as long as there's now a house licensed, it can be developed as "Casa de Campo", a different category also allowing to sell housing units with the Horizontal Property legal structure, with a substantial simplification and reduction of technical requirements and project logistics involved in the "Hotel Rural" category and with considerable savings in costs and higher final profitability.

In the link here above, you will find an introduction to the updated project as "Casa de Campo", some of the substantial differences with the requirements for a "Hotel Rural" are that it is no longer needed a reception, the restaurant, the shared pool with the balneary have been canceled in favor of a private pool for each house plot and rental units, in this new configuration the operational management of the resort is drastically simplified compared to the requirements of a "Hotel Rural".