The Evaluation of Urban Regeneration Processes
55
the “sale and management” scenario, the NPV is positive (although low) while the
IRR is below the minimum acceptable limits for this type of real estate investments
(12.5%).
15 The cost of the waterway (67.5 million euros) has the greatest negative
impact on the sustainability indicators; the expected revenue relating to selling and
renting moorings
16 is unable to sustain the high cost. Five alternative scenarios are
therefore established and configured according to a different combination of some
variables such as: the planning fees to be paid to the municipality
17 ; the allocation
of the construction costs of the waterway; the amount of the areas for the intended
uses (Table 4).
The economic sustainability indicators’s values show that only the scenario 5 can
be considered sustainable: the NPV value is equal to 125.1 million euros while the
IRR is equal to 10.0%, close to the minimum acceptability threshold.
This scenario was configured considering that the waterway will be constructed
entirely by the municipality (and leased for 50 years), that Private Investor will pay
the planning fees (estimated at e 20 million) and that the distribution of the areas
will be aligned with the one indicated in the previous “Blueprint” competition notice
(Fig. 1—left) with 40,000 sqm of residential area.
18
6 Conclusions
The economic and financial evaluation of the “Levante Waterfront” in Genoa point
out that the configured scenario based on the indication of the tender documents is not
economically sustainable for a private investor; the construction cost of the waterway
connecting with the Porto Antico area is the work that has the most negative impact
on the economic feasibility of the intervention.
The only scenario that is feasible, despite having an IRR value slightly below the
minimum threshold, is the one that provides for the construction of the entire waterway by the Municipality of Genoa and the subsequent concession of the moorings
for 50 years to the Private Investor (scenario 5); the scenario also provides for an
increase in the residential area (from 15,000 to 40,000 sqm) and a decrease of the
tertiary area (from 24,000 to 10,000 sqm).
15 The value is determined by the sum of three components (Prizzon 1995): the profitability of an
alternative low-risk investment (1.5%—thirty-year Italian treasury bonds); inflation contingency
(1%); investment property inherent risk (10%).
16 It is considered that 50% of the moorings are sold in the first six years and the remaining 50%
are rented for 50 years, after which they will be sold. In the alternative 1–4 scenarios, the number
of leased and sold moorings is reduced by 50% because half of the waterway is considered public
property; in scenario 5, they are considered in concession for 50 years.
17 Quantified by mutual agreement between the Municipality of Genoa and the Private Investor at
the time of preparation of the Operative Urban Plan (PUO).
18 In relation to the characteristics of the real estate market of Genoa, the residential use is the one
that guarantees a higher profit margin.
55
the “sale and management” scenario, the NPV is positive (although low) while the
IRR is below the minimum acceptable limits for this type of real estate investments
(12.5%).
15 The cost of the waterway (67.5 million euros) has the greatest negative
impact on the sustainability indicators; the expected revenue relating to selling and
renting moorings
16 is unable to sustain the high cost. Five alternative scenarios are
therefore established and configured according to a different combination of some
variables such as: the planning fees to be paid to the municipality
17 ; the allocation
of the construction costs of the waterway; the amount of the areas for the intended
uses (Table 4).
The economic sustainability indicators’s values show that only the scenario 5 can
be considered sustainable: the NPV value is equal to 125.1 million euros while the
IRR is equal to 10.0%, close to the minimum acceptability threshold.
This scenario was configured considering that the waterway will be constructed
entirely by the municipality (and leased for 50 years), that Private Investor will pay
the planning fees (estimated at e 20 million) and that the distribution of the areas
will be aligned with the one indicated in the previous “Blueprint” competition notice
(Fig. 1—left) with 40,000 sqm of residential area.
18
6 Conclusions
The economic and financial evaluation of the “Levante Waterfront” in Genoa point
out that the configured scenario based on the indication of the tender documents is not
economically sustainable for a private investor; the construction cost of the waterway
connecting with the Porto Antico area is the work that has the most negative impact
on the economic feasibility of the intervention.
The only scenario that is feasible, despite having an IRR value slightly below the
minimum threshold, is the one that provides for the construction of the entire waterway by the Municipality of Genoa and the subsequent concession of the moorings
for 50 years to the Private Investor (scenario 5); the scenario also provides for an
increase in the residential area (from 15,000 to 40,000 sqm) and a decrease of the
tertiary area (from 24,000 to 10,000 sqm).
15 The value is determined by the sum of three components (Prizzon 1995): the profitability of an
alternative low-risk investment (1.5%—thirty-year Italian treasury bonds); inflation contingency
(1%); investment property inherent risk (10%).
16 It is considered that 50% of the moorings are sold in the first six years and the remaining 50%
are rented for 50 years, after which they will be sold. In the alternative 1–4 scenarios, the number
of leased and sold moorings is reduced by 50% because half of the waterway is considered public
property; in scenario 5, they are considered in concession for 50 years.
17 Quantified by mutual agreement between the Municipality of Genoa and the Private Investor at
the time of preparation of the Operative Urban Plan (PUO).
18 In relation to the characteristics of the real estate market of Genoa, the residential use is the one
that guarantees a higher profit margin.