INVEST
€ 215 595
raised
€ 340 000
goal
8.00%
rate
24 MONTHS
duration
Real estate
project type
Monthly
% distribution
Mortgage
collateral
PJ Serviss SIA
borrower
27
days left
€ 320 000
MIN amount
Overall risk level
A
A
Financial health
A
Management
B
Company’s record
CALCULATOR
LOAN AMOUNT
RETURN
+
INTEREST
%
DURATION
M
COMMERCIAL REAL ESTATE

Real estate consists of retail spaces, warehouses, and land. It is located on the side of the main road that goes through Liepaja which is 3rd largest city in Latvia. For retail space (572 m2) there is a rent agreement in place until 2025. The loan will be used to purchase ½ of deemed shares for the real estate.





INVEST
€ 215 595
raised
€ 340 000
goal
8.00%
rate
24 MONTHS
duration
Real estate
project type
Instantly
% distribution
Mortgage
collateral
PJ Serviss SIA
borrower
27
days left
€ 100
MIN amount
Overall risk level
A
A
Financial health
A
Management
B
Company’s record
learn more how we grade our projects


ANALYST SUMMARY

We evaluate this project with a grade A. The Company has a great deal coming, which it can either sell later, invest and reconstruct, or keep as it is and earn from rent agreements. Based on the communication with management of the Company, it is planned to invest in reconstruction and make first floor warehouses as offices or small retail shops for renting. The Company should have enough income to cover monthly interest rates and within two-year time, the management would like to sell this property or refinance it in a bank.

GENERAL INFORMATION

A 3-storey building was built in 1980. The total area of the building is 3502m2, of which 1397m2 ground floor (leasable 1010m2), 2106m2 second and third floor combined, including terraces of 471,5m2. The Purchased will be the first floor of the building and ½ of deemed shares for the real estate.

  • The real estate is located in the central part of Liepaja city and located on the main street that cross Liepaja
  • The building has 3 stories and was built in 1980.
  • Strategically its location is great and can be easy accessed from any part of the city.
  • Cars can be parked in the property or municipal parking.
  • The new owner has a plan to invest in first floor reconstruction (unused area) of the building to create it more appealing and to lease it.
SWOT ANALYSIS
STRENGHTS
- Located in the central part of the city
- Convenient access and good exposure to the street 
- The first floor of the building can be rented to one or several tenants
- It has centralised city utilities
- It is possible to park vehicles on the street
WEAKNESSES
- No parking within the territory
- Condition of the building is considered as satisfactory
- Part of premises is not rented
- Only ½ of deemed shares for the property can be acquired
OPPORTUNITIES
- To reconstruct the unused are of first floor and create it as a retail space 
- Premises require repairs, as there are no tenants for part of the building, these premises could be adjusted to the new tenant
THREATS
- Loss of anchor tenant before the end of the lease agreement
- Second owner of the deemed shares could start disputing with the Company
- Economic downturn


COMPANY’S FINANCIALS

Part of the previously described property is evaluated at 320 000 EUR. In the calculation for the rent income is used actual data according to the rent agreement, but for the warehouses – 1 EUR m2. Expense is calculated at approx. 30% of the income, leaving with 30 000 EUR net income. Terminal value is calculated at the end of second year. In the calculation is used 10% capitalisation and 10% discount rate.

We consider that the valuation is very conservative and although we do not have access to precise calculations, the valuator has considered this property as too risky – due to its location and condition.

OUTLOOK OF LATVIA
If simplified – the first to face price increase are manufacturers, who cannot purchase raw materials for the same price as before. Second are retailers, who cannot purchase stock, because manufacturers have increased their prices. Third are consumers. Commercial real estate owners faces inflation when tenants have difficulties in paying rent (because money is spent to run the business), and when the energy or management expense increases.  

As can be observed in the table on the right – inflation has been driven by other segments than retail primarily, as it does not increase as steep as inflation. However, the correlation between inflation and retail sector turnover is 84%, meaning that there is a strong correlation between these data.  

Usually the food retail revenue is not hit hard for long, if the economy shrinks or inflation rises. If the consumer wants to buy the same 10 things now as 1 year ago, then they will pay more money for those same things. However, most probably they will buy less, but at higher prices. This also shifts spending patterns - consumers are more likely to forgo non-food and luxury items in order to afford food items. 

Retail sector is earning by adding overheads and markup to the purchase price. As there currently is high inflation period, it is crucial that retailers follow the prices of products and acts immediately by increasing the price. The same is for real estate management – it is crucial to add to the agreements clause of rent increase at least for the same amount the consumer prices have risen over the past year.
DOCUMENTS