Citic Tower Essay
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Stakes in firms such as Cathay Pacific, Dragonair and a string of trading and property companies * Citic Tower (Original) Property development team had gained extensive expertise and knowledge in the property business * Development began in 1995 and completed in less than two years * Despite post-Asian financial crisis, Citic Tower maintained a relatively high occupancy rate Concerns * The discounted cash flow analysis shows a negative net present value
Commercial real estate market is extremely cyclical * No guarantee that Citic Tower II would be able to survive the economic downturn (perform as well as Citic Tower I has performed) Situation Larry Yung is interested in this property but hesitant due to uncertainty of future economic conditions * Member of the property development team suggested that CPL acquire rights to the land, and thus the development by offering to purchase an exclusive option from the seller * In the past land owners would not even have considered negotiating an option to purchase development sites but property developers are much more cautious after the Asian financial crisis
Calculated by finding the standard deviation of return on assets proportional to time * Net option value=51 million Decision * CPL should (NOT? ) purchase the option *it seems like the price of the option is 77 million (5% equity stake) and if the option value is only 51 million then it seems like a bad idea for them to purchase the option…so I’m confused a little about this part still…maybe you guys could talk to him about this or figure it out