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A developer plans to start construction of a building in one year if at the point rent levels make construction feasible. At that time the
A developer plans to start construction of a building in one year if at the point rent levels make construction feasible. At that time the building will cost $1,500,000 to construct. During the first year after construction would take place, there is a 25% chance that NOI will be $185,000 and a 75% chance that NOI will be $195,000. In either case, NOI would be expected to increase at 1% per year after year one.
How much should the developer be willing to pay for the land to get a 13% IRR?
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