A highly specialised factory of 1,000m2 is owned and occupied by your client for industrial use. The premises were built 17 years ago when it was estimated that their economic life would be 50 years. Current optimised replacement building costs are $1,700/m2. The current market rent of the property is $185,000 per annum and market yields on similar premises are 8%

Your client also has planning permission to redevelop the whole site providing for 2,000 m2 of new industrial floor space which (s)he is confident of pre-letting. Construction would take one year and would let at approximately $300/m2. The developer anticipates a profit of 20% on net realisation value. Total construction costs are estimated to be $1,700/m2 with professional fees at 15%. Finance is available at 8%. Letting fees are 10% and the investment sale fees are 5.75%. Site acquisition fees will be 4.75%.

Based on the above information and assuming payment in advance: