In: Finance
Answer 1: The new Arena of the Warriors which is the Chase Center will allocate $1 billion to get constructed because the permit cost was $780 million which was issued in April 2017. This is because the $780 million consisted of only the developmental costs. The final value, change in the orders, furnitures and equipments were not included in the amount and hence it was $1 billion estimated to construct the entire Chase arena.
Answer 2: The new streams of earnings the the Warriors would generate which will help to cover the arena cost was on the 11 acre land there would be 18000 seat capacity which will be booked for events for more than 200 days annually. There will be 100000 square feet of retail space whichi will be rented to various retail companies. 580000 square feet of office space was also constructed where half of the space was rented to Uber Cab company and the other hald was taken on lease for 20 years at $300 million by JP Morgan. Also, there will be suites which will cost $525000 to $2.5 million.
Answer 3: The risks that Warriors faces in taking full cost of the project is the ability to recover the cost. This is because Chase Arena have priced their suites cost at $525000 to $2.5 million. The prices were estimated extremely high compared to the prevailing market prices of the suites available in other arenas. The cost of the same suites in Oracle Arena was between $200000 to $300000. Also, Chase arena have targeted to conduct atleast 200 events annually while the avergae events held in other arenas were 110. This overestimation of events to be held in Chase arena annually was another risk.
Answer 4: The lenders will determine the ability of Warriors to repay the loan based on their performances in the NBA tournaments. The more tournaments Warriors wins, the more spectators will be attracted towards watching the tournaments and buy tickets. Secondly, the lenders will also look for the brand value of the companies who are renting the retail space in Chase arena. Thirdly, the lenders will evaluate whether the Warriors has the ability to conduct more than 200 events annually as per their projections. Fourthly, they will also check the capital structure of Chase arena. Finally, the lenders will majorly check the cash flows of Chase Arena. This will help to analyse whether cash flow are positive or negative and the ability of Warriors to make repayment on debt.