More market blues
The city government of Baguio once wanted to develop the market and eyed a P2 billion loan from the Development Bank of the Philippines plus P4B of its own money to finance the project.
Equity financing had the shortest payback year and highest return of investment compared to debt servicing, public private partnership-lease, and PPP-joint venture.
Equity financing income is P16.027B with an expense of P726B equals net income of P10.03B; return of investment in 20 years minus 8.58 percent; return of investment and payback done in 10.91 years.
Along the way, the plan fizzled when SM and Robinsons expressed interest in the public market redevelopment and the preference of the Gods was PPP, as the city cannot afford allocating P4B and paying the amortization of a P2B loan would affect the city’s delivery of services and implementation of projects.
In June 2020, the city reported that SM and Robinsons have qualified for the bid, easing out the Baguio Market Vendors Association (BMVA) due to legal technicalities. The BMVA offer was a “P3B modestly-sized building.” The structure has pay parking and modern features. The group projected a lower rental rate at P50 per square meter per day possibly P40 to P42/sq.m./day depending on the design and scope of the development.
And so it goes that the city decided to go into PPP, which I wrote in my column last week that the chief executive has reversed the decision of the selection committee and awarded the original proponent status to SM instead.
Let’s compare: Robinsons submitted an unsolicited proposal on Feb. 7, 2020 for 30,408 sq.m. It consists of a multi-level public market with basement parking building 1 (7,896 sq.m.) and building 2 (25,022 sq.m) multi-level mixed-use development/mall with parking for P6.148B.
In building 1, the lease shall be P100 per sq.m. per month with three percent escalation every five years, for a total of P1.29B. This shall be used for the Baguio City Public Market redevelopment until the amount is fully paid/liquidated. There will be 4,000 stalls of six square meters each. The rent per square meter per month is P500. Parking has 631 slots (7,896 sq.m.) Parking fee is P50 for the first two hours and P20/hr for the next hours for a 16-hour operation at eight turns per slot per day. The three-story commercial mixed-use development at P900/sq.m./month.
After 50 years and an automatic renewal for 25 years, all physical improvements made to the property shall be city property. The total annual income from market operation for building 1 is P189,432,000.
For building 2 or mixed-use development/mall/commercial mixed-use development/mall (17,515.40 sq.m.) parking has 1,580 slots (19,759.2) with same rates. The total annual revenue from commercial operations is P681,258,960.
On the other hand, SM has submitted an unsolicited proposal on Feb. 7, 2020 for 25,022 sq.m.
Building 1 is a seven-story with two basement parking, two floors for the market, and three commercial floors and a roof deck for P6.032B. The land lease payment was PP70,376/sq.m./year/ for the entire term or a total amount of P2.324B.
The rental will be offset by the cost to construct the two-story new public market. The ownership of the development after 50 years does not pertain to the city because it must purchase the improvements valued at either 1/10th of one percent of the total investment cost for the developments (P3,708,000) or the salvage value of such improvements, whichever is lower.
The lease of two floors (34,019.25 sq.m.) is P105.00/sq.m. and income for the city annually is P42,863,940. The three floors commercial area (53,982.93 sq.m.) shall be P900 (30/sq.m./day) and two basement parking (24,100 sq.m.) with 1,936 slots. Same parking rates as the other mall. The total revenue for commercial operations is P722,947,644 excluding the two-floor market revenue.
They are not in for charity, so the investor expects ROI.
For a payback period of 15.77 years, Robinsons expects a 6.34 percent annual ROI while SM expects 6.16 percent ROI in 16.22 years.
This is based on total annual opera-ting income divided by the total project cost (P407,016,080.80 and P6,418,669,960) and (P371,799,522.00 and P6,032,000,000), respectively.
If the market rental income is excluded, the ROI for parking and commercial operations in 23.53 years is 4.25 percent (P272,360,080.80/P6,418,669,960) while SM in 18.34 years is 5.45 percent (P328,935,582.00 and P6,032,000,000).
Complicated but analysis shows what offer is advantageous to our people but the bottom line would be, when brought before the Supreme Court, will the process be legally tenable?
Your guess is as good as mine. Sigh.