Analysis of Development Alternatives for a Single-Family Home
|
Alternative 1 |
Alternative 2 |
Alternative 3 |
Site Acres |
0.5 |
0.5 |
0.5 |
Beds / Baths |
4 beds / 3 baths |
4 beds / 3 baths |
4 beds / 2.5 baths |
Special Features |
Carpet |
Hardwood |
Hardwood |
Estimated Approvable Building sf |
2,500 |
2,500 |
2,500 |
1 . Value of Brand New Construction * |
$ 600,000 |
$ 625,000 |
$ 575,000 |
Hard Cost ( per sf ) |
$ 145 |
$ 150 |
$ 140 |
Hard Cost ($ per sf x building sf ) |
$ 362,500 |
$ 375,000 |
$ 350,000 |
Soft Cost ( 10 % of Hard Cost ) |
36,250 |
$ 37,500 |
$ 35,000 |
Incentive ( 20 % of Hard and Soft Costs ) |
$ 79,750 |
$ 82,500 |
$ 77,000 |
Replacement Cost , New ( RCN ) |
$ 478,500 |
$ 495,000 |
$ 462,000 |
Site Improvements ( 10 % of RCN )** |
$ 47,850 |
$ 49,500 |
$ 46,200 |
Site Infrastructure ( 5 % of RCN ) |
$ 23,925 |
$ 24,750 |
$ 23,100 |
2 . Total Construction Costs |
$ 550,275 |
$ 569,250 |
$ 531,300 |
Residual Raw Land Value ( 1 - 2 ) |
$ 49,725 |
$ 55,750 |
$ 43,700 |
Residual Raw Land Value ($ per sf ) |
$ 19.89 |
$ 22.30 |
$ 17.48 |
Residual Raw Land Value ($ per acre ) |
$ 99,450 |
$ 111,500 |
$ 87,400 |
* Estimated costs ** Site infrastructure refers to physical site improvements to the land that are not |
depreciable ( like grading , storm basins , and utility extension ), while site improvements refer to |
depreciable components ( like sidewalks , driveways , and landscaping ). |
a concept known as “ transferred value ,” which contends that a development may be financially feasible if one considers the enhancement to business / brand value as well ( i . e . not all of the project value is derived from real estate ). In this way , owner-users who develop land may employ a land residual analysis based on a combination of 1 ) the value of the real estate when complete , and 2 ) the increase in business value from having a better location and newer buildings to attract clients , thus resulting in a willingness to pay an amount for land that rarely pencils when viewed strictly from a real estate financial feasibility perspective .
Another weakness in utilizing the land sales comparison approach exclusively is that without a site survey or engineer analysis of development potential based on zoning and setback requirements , the differences in development density between sites may significantly deviate , making any comparison less credible . In short , the residual analysis is an ideal analysis if the approvable building area , estimated cost to construct , and development risk are credibly input .
decisions are often based on enhancements to business / brand value as a result of relocating , renovating , or ground-up developing in a visible or accessible location . These development decisions rarely result in real estate financial feasibility due to the location and development criteria being specific to each user . In other words , the project may be financially feasible , holistically , but it is not financially feasible from the real estate value perspective alone . This is
Michael J . Rohm , CCIM , MAI Founder of Commonwealth Commercial Appraisal Group & Senior Associate at
Landmark Commercial Realty Contact him at mrohm @ landmarkcr . com .
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