Office space

[colonel_truman]

Here´s our chosen spot in Lambs Grove with 12 buildings. We took all the money offered and used it fully to buy the max land available around, at once, before placing the buildings. The city conveniences show just a lack of high school services, so the ratings will be fair.
The first building shows a total cost of 10.4 m (land + building) for it and the others show a bigger total cost as the land has increased in value just after we placed the first, then the second and so on. So we´ll use that first data as the real cost for each to estimate the profitability.
Estimates here cannot be as straightforward as we´d like because we have to take into consideration the inflation and the interest rates, which we cannot control or know, so we´ll use the current conditions, and establish our margins of safety so we don´t go under water in the future.

City View Lambs Grove feb1994.png (1.01 MiB) Viewed 6398 times

CITY SURVEY:
Cheapest land price: 578k x square
City housing points (total): 62.5(city) + 24(own) = 86.5
Estimated increase in supply%: 24*100/62.5 = 138.4%
Market rent x sqfoot is 23.08 = 180k/month profit (city average, or so)

EXPENSES & ASSETS
Land cost (total): 175 m (extra land bought)
Building cost: 87.4 m (12 buildings)
Total expenditure: 262.5 m

Increase in net assets (after debt): 31.36 m
Increase in book assets (land+buildings): 293.86 m
Increase in book assets (land): 293.86 - 87.4 = 206.46 m

RAW ESTIMATES
Cost per building (inc. land) = 10.5 m average
Rent due in 5 years to cover costs: 10.5/60 = 175k/month
Market rent x sqfoot (own, average) = 21.18$
Market rent x sqfoot is 23.08 = 180k/month profit
Projected income (x own building) = 165k/month x 12 = 1.98 m/year (at 100% occupancy)
Projected total income (yearly) = 165k x 12 x 12 = 23.76 m/year (at 100% occupancy)

FINANCIAL CONDITIONS
Yearly debt payments x building: 577k at 5.5% rate
Means 1.4 m/year net profit (after debt payments)
Means 7.5 years to cover costs (at 100% occupancy)
Yearly debt "repayment" as inflation: 651k at 6.62% = 16.13 years (no principal paid)
Estimated net profit after 16.13 years = 12 m x 12 buildings = 124 m
Estimated net profit after 32.26 years = 124 + 16.13 x 23.76 = 507.25 m

Profitability of investment: in first 16.13 years = 98%
Profitability of investment: in second 16.13 years = 305%
Profitability of investment: in 32.26 years = 403%

Balance Sheet feb1994.png (627.82 KiB) Viewed 6398 times

[bdubbs]

I've enjoyed your write up. I've never really played a retail focused game, and I have to say its not as easy as it looks. When I tried it I had difficulty getting the bank to extend my line of credit initially which stalled out my expansion entirely. I'm assuming it must be that I'm not creating big enough gains in the land value. I also had the CBD move on me a second time after a year which made the location of my commercial buildings terrible

[colonel_truman]

Hey, thanks for reading. I´ll try to write a new post tomorrow. I have played one full year ahead... and already scuttled the residential district
I was already wondering if I could give away genuine tips, so feeling more at ease after reading about your experience.
You are welcome to play a part and comment. The saves are posted regularly.

[unknownCapitalist]

Awesome play-through, please keep us updated !

[colonel_truman]

FEBRUARY 1994 - FEBRUARY 1995

Ok, fast forward 1 year, to february 1995.

The building of the residential district in Lambs Grove boosted the asset valuation of our company, so the bank has been happy enough from that moment to keep buying our project.
We decided this time to decrease the scale of the construction in each of the cities, and instead adding up as soon as we had the cash. So we have been buying small lots of land in each city, then a couple of buildings, and so on, until we run out of cash.
We did notice good opportunities close to our commercial districts so we did buy the land and built on it accordingly.
To do so has two benefits: One, we increase the appeal of the offices, so they fatten our revenues; two, we increase the value of the land overall more efficiently, by building point blank, and so our assets inflate and both bank and investors, our financing actors current and future, feel happier and safer to own us.
Here are the city views:

City View Lynden feb1995.png (967.59 KiB) Viewed 6313 times

City View Glen Fork feb1995.png (1.04 MiB) Viewed 6313 times

City View Funk feb1995.png (980.61 KiB) Viewed 6313 times

To mention:
As soon as our residential district in Lynden was built the CDB flipped towards it.
There has been an increase both in inflation and interest rates, but the real rate is still negative.
The net income from our residential districts is negligible, as seen in the Income statement report. In february 1995 it stands at 1.625m/month, net q just above 0/month after loan interests.
All available shares of Fusion corp have been bought by us. Next we´ll wait to see if current shareholders shed their take and we can increase ours.

Stock Market feb1995.png (538.74 KiB) Viewed 6313 times

This same february 1995 we decided to scuttle our residential district in Lambs Grove (the first we built). The reason is that almost 100% of the residential buildings in the city have better ratings than ours and we cannot compete with them at this moment. So, having served its asset inflating purpose we move on to greener pastures. In the city view you can see a part of the bare plot in the north where it stood, and its new abode. Incurring:
Net profit of 29m (included 1yr loan cost)
New district cost of 306m (invested the whole sale to buy extra land)

City View Lambs Grove feb1995.png (1.05 MiB) Viewed 6313 times

AIMS FOR NEXT YEAR:
Increase the demand for office space, encouraging city growth by building residentials. Keep building offices.
Increasing the value of the district increases the income from rents. Build concentrated.
In Funk: the residential district purpose is to increase the appeal of our commercial district. The income from rents barely pays. Spots for possible residential downtown have costs of 12m x building and low relative rents so they remain a second tier opportunity.
To have small amounts of cash because of the 7% inflation, and to keep away from repaying loans until financial conditions start to change.

TO WATCH:
The increase in land price: Know how much we can sell to pay the loans in the future.
The increase in population, to drive the demand for new buildings.
The livelyhood ratings in the cities. We expect not to decrease them too much.
Ratio income/expenses: Evolution of real rates and their possible impact on our budget. Currently we can withstand a 9% real rate with just income from offices.
Stock Market: Possible acquisitions will be valuable companies: Good retail sellers with little competition or undervalued asset companies.
AI real state competition. No move so far.

NUMBERS for residential districts: (to take with a pinch of salt)
The two rich cities of Lambs Grove and Lynden have potential for good apartment districts in rent terms.
Glen Fork has a moderate appeal.
Funk the worst.

Lambs Grove:
Land and building cost (current average x building): 11.5m
Current income from buildings: 0/month (new neighborhood)
Interest payments x building at 6% (covering land and building costs): 57.5k/month
Income due to cover costs in 6 years (inflation 0%): 160k + 57.5k = 220k
Income due to cover costs in 8 years (inflation 0%): 120k + 57.5k = 177k

(inflation 0% means no change in loan interests, as inflation won´t eat up principal, lowering costs, and we don´t pay down principal either. So worst case at 6%.)

Lynden:
Land and building cost (current average x building) 11.5m
Current income from buildings: 950k/month
Interest payments x building at 6% (covering land and building costs): 57.5k/month
Income due to cover costs in 6 years (inflation 0%): 160k + 57.5k = 220k
Income due to cover costs in 8 years (inflation 0%): 120k + 57.5k = 177k

Glen Fork:
Land and building cost (current average x building) 9.5m
Current income from buildings: 675k/month
Interest payments x building at 6% (covering land and building costs): 47.5k/month
Income due to cover costs in 6 years (inflation 0%): 131k + 47.5k = 180k
Income due to cover costs in 8 years (inflation 0%): 99k + 47.5k = 146k

Funk:
Land and building cost (current average x building) 9.1m
Current income from buildings: breaking even
Interest payments x building at 6% (covering land and building costs): 45.5k/month
Income due to cover costs in 6 years (inflation 0%): 126k + 45.5k = 172k
Income due to cover costs in 8 years (inflation 0%): 95k + 45.5k = 140k

The balance sheet and Income statement.

Balance Sheet feb1995.png (605.55 KiB) Viewed 6313 times

Income Statement feb1995.png (514.06 KiB) Viewed 6313 times

PLAC_013.rar

(3.23 MiB) Downloaded 252 times

[bdubbs]

I think what's toughest about this strategy is the first year. I've tried it a few different ways on different maps / cities and I just don't see how you manage to increase the value of your land enough to keep increasing your credit limit with your first commercial building.

[colonel_truman]

Well, post your save file and we´ll see. The 1st commercial district took 1.5 years to develop.

[colonel_truman]

Here´s something resembling what could be implemented as a detailed Income Statement and/or Balance Sheet for our real estate expansion.
We can easily spot where´s the money coming from (or isn´t coming from) taking a look at it, so we can expand & manage our districts accordingly.
I´ve ommited occupation and won´t be able to post percentage changes YoY as it would be too much for my layman´s abilities.
Any suggestions to improve it and/or lower the labor costs to create it will be very welcome.

[colonel_truman]

FEBRUARY 1995 - FEBRUARY 1996

Following our aims from february last year we´ve built offices in all cities, and a few apartments in Lambs Grove, Lynden and Glen Fork. Not in Funk.
We´ve made good use of our already purchased land to build there, sold some squares where expansion wasn´t deemed feasible and bought some in the opposite case.
We´ve kept the supply of residential buildings 30% above demand, and offices 10% above demand.
The Housing and Community Facilities Ratings have increased in the cities where we´ve built new apartments, meaning we´ve built in good areas where sevices are available, and other city buildings have had tenants moving out to us.
As more apartments of quality have been made available, the cities have been receiving people from the outside. We cannot set the limit for new migrants as we cannot influence town politics yet, but it seems that all possible migrants are arriving so far.
Funk is the exception, as we have set supply lower and the city hasn´t grown as much. We might have plans for that city further down the road.

We´ve increased our debt 16,5% by 250 million.
Our land&building assets have increased 27% by 569 million.
Our profits have increased 76% by 99,1 million.

Balance Sheet feb-1996.png (582.17 KiB) Viewed 6208 times

Income Statement feb-1996.png (489.13 KiB) Viewed 6208 times

Here´s the city views.

City View Lynden feb1996.png (992.29 KiB) Viewed 6208 times

City View Glen Fork feb1996.png (1.04 MiB) Viewed 6208 times

City View Funk feb1996.png (1020.25 KiB) Viewed 6208 times

City View Lambs Grove feb1996.png (1.03 MiB) Viewed 6208 times

Also, we´ve been playing a bit the stock market as we had to put our available cash somewhere (we said we´d keep small amounts of cash), so we´ve built small stakes in a few companies for the short run.

Stock Market feb-1996.png (514.62 KiB) Viewed 6208 times

I´ll hire a real estate manager to create a new detailed Income Statement & Balance Sheet. We need to know our margins and where´s the money coming from in more detail.
I´ll also discuss possible aims for next year in the next post.
Thanks for reading.

[bdubbs]

I tried downloading your save, but unfortunately I'm using a newer version so the saves are incompatible. I'll definitely keep following your write up though. Your situation looks pretty healthy overall with $20m operating monthly profit vs $8m in interest paid. Do you have a plan for paying down your debt when macro factors turn on you? Also I'm just curious what you're currently R&D'ing. I'm assuming that means you're planning to break into retailing or manufacturing at some point