Question:

You own a vacant piece of land.After extensive market research, you find the Highest and Best Use (HBU) of the land is to construct an apartment building on it. The cost of constructing a brand new apartment building is $3.7 million at which point the property will be worth $5 million (based on the cash flows an operator can get from it).

1(a). An out-of-state developer offers you $1.5 million to purchase the land right now.Should you sell it?Explain with reference to your analysis of the Value of a Vacant Piece of Land.

1(b).You commission a professional appraisal (valuation) of your property. The appraiser informs you that your Property Value (land and building) is $8.5 million as-is today.

At its new HBU (a brand new office building) your parcel would be worth $10.2 million.Offhandedly, the appraiser warns you that the gap between the two values is only likely to widen as time goes on.

The cost of redeveloping the site today is $4.0 million. Should you redevelop it now?Explain your reasoning with the relevant calculations.

1(c).Assuming the proposed redevelopment necessitated demolishing your building and starting from scratch (a cost already included in the redevelopment cost), what is the current value of your building (just the structure)?Show your work.