Schulich School of Business

Millegan Creek
An Investment Analysis

Ashwin Kumar (210693430)

Kairvee Malik
Nishant Patel
Pankaj Narang
Sagar Tawde

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Some of the issues for Fleet to finance Millegan Creek Apartments are whether JPI would be

able to repay the loan or not, how JPI would pay back their loan and if the demand for

apartments will stay in the market. Apart from this Fleet Bank has to decide whether the deal

negotiated by Tom with JPI should be changed or not i.e. how a change in interest rate will affect

both the parties. Moreover with the environmental concerns increasing in Austin, it will be

difficult for developers to continue with their projects if they do not meet the required standards.

Fleet is also concerned about the general economy in Austin.

The economy in Austin has been growing for the last so many years and has been ranked near

the top of the list of the most desirable cities in which to locate businesses. There are various

high technology companies which have set up their base in Austin. Companies like IBM,

Motorola Inc, Apple Computers, and Texas Instruments employ an approximately 23000 high

skilled employees making Austin one of the best for Knowledge workers.

The Austin Apartment market has gone through its ups and downs. Looking closely we see that

there is a trend of decreasing occupancy percentage every 5-6 years. Going with this trend, we

can say that occupancy rate might go down in future i.e. it can decrease from 1993 onwards.

Also, there is an assumption made by Tom that over the next three years there would be around

8744 units built. When we look at the population data, we see that there is an approximately

addition of 30,000 people every year. So the increase in demand for houses is compensated by

the supply of newly constructed apartments.

JPI Multifamily Inc. (JPI) is a well-known developer, famous for surviving the Texas real estate

crash. It has an experience of building a large number of apartments. In March 1994, they had
eight projects with 2,700 units under construction. It has already developed two apartments, one

in South west part town and other in North Central area, in Austin. It had some interesting

apartment projects, which had takeout commitments from General Electric Credit Corporation.

In addition to developing apartments, JPI managed about 10,000 apartment units. It tries to

continually refine and improve their buildings and amenity packages based on their experience

and periodic surveys of their residents.

Location of the site plays an important role in JPI choosing the location for the development of

the apartments. JPI got interested in area to the North of Jollyville road and outside of the Austin

City limits after the Parmer Lane got expanded from a two lane to a six-lane road, leading to

excellent north-south access. Even the McNeil Road, which brought about 15,000 cars in an east

west direction past the site each day, was upgraded from a two lane to a five-lane road. Due to

the property location being outside the City of Austin, the property taxes were lower and zoning

approval easier. It was also very close to Austin’s high tech companies, which made the site

more desirable.

Millegan Creek Apartments would be a typical JPI luxury apartment targeting renters with high

discretionary incomes. The site would include amenities like two swimming pools, a clubhouse.

Millegan Creek Apartments would be a typical JPI luxury apartment complex targeted at people

with lifestyle choice to live in rental apartments. When we compare these apartments with the

others in the same area, we find that JPI have priced Millegan Apartments quite competitively

and at a rental rate of $0.83 per square feet per month. We believe that with a focused customer

and competitive pricing, JPI would be able to market Millegan Apartments successfully.