1.

Project Details:

 Site Information:

o Location: North Manchester, 7 miles from Oxford Road.

o Site preparation costs, including land surveys and utility connections.

2. Cost Estimates:

 Construction Costs (CAPEX):

o Per Unit Cost: The average build cost for an en-suite student bedroom ranges
from £35,000 to £45,000, averaging £40,000 per unit.

Construction News

o Per Square Meter Cost: Building costs for student accommodation are
approximately £2,329/m².

RICS

o Total Construction Cost: For 100 rooms, the total construction cost is
estimated at £4 million (100 rooms × £40,000 per room).

o Construction Timeline: Assume a 2-year construction period with costs

distributed evenly.

 Operational Costs (OPEX):

o Annual Operating Expenses: Include maintenance, utilities, staffing, and

insurance.

o Per Room Annual Cost: Estimate £2,000 per room, totalling £200,000
annually for 100 rooms.

3. Revenue Estimates:

 Accommodation Fees:

o Average Rent: The average student rent in Manchester ranges between £700-
£1,100 per calendar month (pcm).
Homes for Students

o Annual Revenue per Room: Assuming an average rent of £900 pcm, each
room generates £10,800 annually.

o Total Annual Revenue: For 100 rooms, the total annual revenue is £1.08
million.

 Occupancy Rate:

o Assumed Rate: Assume a 95% occupancy rate, leading to an effective annual

revenue of £1.026 million.

4. Financing Structure:

 Debt-to-Equity Ratio: Assume 80% debt and 20% equity financing.

 Interest Rate on Debt: Assume an interest rate of 8% on debt.

 Equity Return Requirement: Assume a required return of 12% on equity.

 Weighted Average Cost of Capital (WACC)= 0.8 * 0.08 + 0.2 * 0.12 = 8.8%

5. Risk Assessment:

 Construction Risks: Potential for cost overruns and delays.

 Operational Risks: Lower-than-expected occupancy rates and unexpected increases

in operational costs.

 Financial Risks: Interest rate fluctuations and default risk.

6. Cash Flow Models:

 Base Case Scenario:

o Assumptions: 95% occupancy rate, standard operational costs, and no

significant unforeseen expenses.

o Cash Flow Projection: Develop a year-by-year projection over the

concession period, including revenues, operating expenses, debt service, and
equity returns.

 Worst-Case Scenario:
 o Assumptions: 80% occupancy rate, 10% increase in operational costs, and a
6-month construction delay.

o Cash Flow Projection: Adjust the base case model to reflect these adverse
conditions.

7. Cumulative Cash Flow Analysis:

 Diagrams: Create cumulative cash flow diagrams for both scenarios to visualize cash
inflows and outflows over time.

 Break-Even Analysis: Determine the payback period and assess the project's
financial viability under different conditions.

Data Sources:

 Construction Costs: Industry reports and cost modelling services.

 Operational Costs: University financial reports and industry benchmarks.

 Revenue Estimates: Market surveys and university accommodation fee schedules.

 Financing Terms: Financial institutions and market analyses.

 Risk Factors: Industry studies and historical data from similar projects.

Analysis
Base case (WACC as a discount factor)

1) Base case (all figures are in £ million)

Year Revenue OPEX CAPEX cashflow CCF

2024

2025 -2 -2 -2

2026 -2 -2 -4

2027 1.026 -0.2 0.826 -3.174

2028 1.026 -0.2 0.826 -2.348

 2029 1.026 -0.2 0.826 -1.522

2030 1.026 -0.2 0.826 -0.696

2031 1.026 -0.2 0.826 0.13

2032 1.026 -0.2 0.826 0.956

2033 1.026 -0.2 0.826 1.782

2034 1.026 -0.2 0.826 2.608

2035 1.026 -0.2 0.826 3.434

2036 1.026 -0.2 0.826 4.26

2037 1.026 -0.2 0.826 5.086

2038 1.026 -0.2 0.826 5.912

2039 1.026 -0.2 0.826 6.738

2040 1.026 -0.2 0.826 7.564

2041 1.026 -0.2 0.826 8.39

2042 1.026 -0.2 0.826 9.216

2043 1.026 -0.2 0.826 10.042

2044 1.026 -0.2 0.826 10.868

Total 18.468 -3.6 -4 10.868

project's economic parameters

IRR Total CAPEX Total OPEX Total Revenue NPV Payback Period

18% -4 -3.6 18.468 £ 2.66 years fraction

6 -0.15738499

5.84261501
 14.868
Total net cashflows from operation

minimum acceptable return (MARR) 8.8%

Weighted Average Cost of Capital (WACC) 8.8%

£ 2.66
NPV

IRR 18%

PBP 6 -0.15738

CCF
12

10

6
CCF in million

4
CCF
2

0
4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4
02 02 02 02 02 02 03 03 03 03 03 03 03 03 03 03 04 04 04 04 04
-22 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

-4

-6

Year

Worst case
Assumptions
> Capex increased by 10% due to 1 year construction delay
> operational costs increase by 10%
> occupancy rate decrease to 80%

Total net cashflows from operation 10.948

minimum acceptable return (MARR) 8.8%
Weighted Average Cost of Capital
(WACC) 8.8%
 1) Worst case (all figures are in £ million)
Year Revenue OPEX CAPEX cashflow CCF
2024
2025 -1.46667 -1.46667 -1.46667
2026 -1.46667 -1.46667 -2.93333
2027 -1.46667 -1.46667 -4.4
2028 0.864 -0.22 0.644 -3.756
2029 0.864 -0.22 0.644 -3.112
2030 0.864 -0.22 0.644 -2.468
2031 0.864 -0.22 0.644 -1.824
2032 0.864 -0.22 0.644 -1.18
2033 0.864 -0.22 0.644 -0.536
2034 0.864 -0.22 0.644 0.108
2035 0.864 -0.22 0.644 0.752
2036 0.864 -0.22 0.644 1.396
2037 0.864 -0.22 0.644 2.04
2038 0.864 -0.22 0.644 2.684
2039 0.864 -0.22 0.644 3.328
2040 0.864 -0.22 0.644 3.972
2041 0.864 -0.22 0.644 4.616
2042 0.864 -0.22 0.644 5.26
2043 0.864 -0.22 0.644 5.904
2044 0.864 -0.22 0.644 6.548
Total 14.688 -3.74 -4.4 6.548

project's economic parameters

IRR Total CAPEX Total OPEX Total Revenue NPV Payback Period
11 year
% -4.4 -3.74 14.688 £ 0.60 s fraction
9 2.83229814
11.8322981
 CCF
8

4
CCF in million

0
24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20
-2

-4

-6

Year
Proposal for Student Accommodation Development Through Project Finance
Executive Summary
This report presents a comprehensive proposal for developing postgraduate student
accommodation through project finance in partnership with the University of Manchester
(UoM). The proposed development comprises 100 en-suite rooms located in North
Manchester, approximately 7 miles from the Oxford Road campus. The financial analysis
demonstrates project viability with a base case Internal Rate of Return (IRR) of 18% and a
Net Present Value (NPV) of £2.66 million, indicating strong potential for both the university
and private investors.
1. Project Overview
The proposed development represents a strategic response to the University of Manchester's
(UoM) accommodation shortage through a public-private partnership (PPP) model. This
approach aligns with the growing trend in higher education infrastructure development,
where universities leverage private sector expertise and capital while maintaining strategic
control over student services (Construction News, 2015).
The project scope encompasses the development of 100 en-suite student rooms specifically
designed for postgraduate students, addressing a distinct market segment with unique
accommodation requirements. The location in North Manchester, while situated 7 miles from
the Oxford Road campus, presents both challenges and opportunities. The distance from the
main campus necessitates careful consideration of transportation links and student amenities,
but it also offers potential for area regeneration and the creation of a new student community
hub.
The two-year construction timeline has been strategically planned to minimize disruption to
academic cycles while ensuring optimal quality control. This timeline incorporates essential
phases including site preparation, utility connections, and the implementation of modern
student-focused design elements that meet current market expectations (RICS, 2019).
2. Financial Analysis
2.1 Cost Structure
The capital expenditure (CAPEX) is estimated at £4 million, based on an average cost of
£40,000 per unit, aligned with current industry standards (RICS, 2019). The construction
costs are distributed evenly over the two-year build period at £2 million per annum. The
operational expenditure (OPEX) is projected at £2,000 per room annually, totaling £200,000
per year, covering maintenance, utilities, staffing, and insurance.
2.2 Revenue Projections
Based on current Manchester student accommodation market rates, the proposed monthly
rent is set at £900 per room (Homes for Students, 2023). This generates potential annual
revenue of £10,800 per room. Accounting for a 95% occupancy rate in the base case scenario,
the effective annual revenue is calculated at £1.026 million. The Income Loss Rate (ILR) is
calculated as:
ILR = (Potential Annual Revenue - Effective Annual Revenue) / Potential Annual Revenue
ILR = (£1.08M - £1.026M) / £1.08M = 5%
2.3 Financing Structure
The project employs an 80:20 debt-to-equity ratio, with debt financing at 8% interest and
required equity returns of 12%. This structure yields a Weighted Average Cost of Capital
(WACC) of 8.8%, calculated as: WACC = (0.8 × 8%) + (0.2 × 12%) = 8.8%
3. Risk Analysis
The project faces several key risks requiring careful management:
Construction Risks: Potential delays and cost overruns during the two-year construction
period must be managed through robust contracts and experienced contractors.
Operational Risks: The primary operational risk is maintaining high occupancy rates. The
worst-case scenario models an occupancy rate of 80%, resulting in an increased ILR of 20%.
Financial Risks: Interest rate fluctuations and market conditions could impact project
viability. The debt-heavy capital structure (80%) makes the project particularly sensitive to
interest rate changes.
4. Cash Flow Analysis
4.1 Base Case Scenario Key metrics under the base case scenario:
 NPV: £2.66 million (using 8.8% WACC)
 IRR: 18%
 Payback Period: 5.84 years
 Cumulative Cash Flow by Year 20: £10.868 million
4.2 Worst Case Scenario Under adverse conditions:
 NPV: £0.60 million
 IRR: 11%
 Payback Period: 11.83 years
 Cumulative Cash Flow by Year 20: £6.548 million
5. Conclusion and Recommendations
The project demonstrates strong financial viability, even under adverse conditions. The base
case IRR of 18% significantly exceeds the WACC of 8.8%, indicating robust value creation.
To ensure project success, we recommend:
1. Implementing strict construction cost controls
2. Developing a comprehensive marketing strategy to maintain high occupancy rates
3. Considering interest rate hedging strategies
4. Establishing a maintenance reserve fund from operating cash flows
References
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reward. Retrieved from [Link]
accommodation-high-demand-high-cost-high-reward-25-06-2015/

Royal Institution of Chartered Surveyors. (2019, June 25). BCIS featured analysis – student
accommodation. Retrieved from [Link]
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Homes for Students. (2023, September 1). A student guide to cost of living in Manchester:
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student-guide-to-cost-of-living-in-manchester-rent-living-expenses-and-more

Save the Student. (2023, October 1). Student living costs in the UK 2024. Retrieved from
[Link]
[Link]

University of Manchester. (2024, March). Cost of living | Student experience. Retrieved from
[Link]

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Retrieved from [Link]

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[Link]

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[Link]

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