1 Determine the market value of the following development site for a new industrial warehouse:
Expected cost to build: $2 000 000
Period of development: 12 months
Legal and commission on sale: 5%
Cost of money: 16% pa
1.2% per month of land value.
Legal and stamp duty on purchase:4%
Expected net annual income on completion:$300 000 pa
Net capitalization rate: 11% pa
Profit and risk factor: 18%
2 Prove your answer in 1.
3 Determine the value of industrial in globo land from the following information:
Number of industrial allotments: 36
Average expected price
per allotment: $250 000
Legal and commission on sale: 6%
Cost of subdivision and new road works:
Expected period of development:
Cost of money: 18% pa
1% per month on land value.
Profit and risk factor: 22%
Legal and stamp duty on purchase: 4%
4 Prove your answer in 3.
5 Analyze the profit and risk factor for a residential subdivision from the following information:
Gross realization: $1 500 000
Commission and legal on sale:
6% of gross
Cost to develop: $500 000
Cost of land: $100 000
Stamp duty and legal on
Holding charges: 0.8% per month
Total period of development:
Loss of interest: 1% per month
6 Prove your answer in 5.
7 What are the relevant factors that make up the profit and risk of a proposed development?
How do these vary with size and complexity of development?
8 Analyze the courts' assessment of risk of realization in hypothetical developments. What factors do they consider make up the risk?
Is this the same as the Profit and Risk Factor?
9 Discuss the courts' approach to Hypothetical Development. Why have the courts been reluctant to accept Discounted Cash Flow and statistical methods (such as Multiple Regression Analysis) as valid methods of valuation?
10 When determining the net realization after profit and risk, the net realization is multiplied by the factor; 100/(100+PR), where PR = the profit and risk as a percentage.
What is the logic behind such a calculation?
11 Analyze the arguments used in the Albany case against the use of Discounted Cash Flow. How important are such arguments to the valuation profession?
Does the logic apply to all methods of valuation that include large amounts of speculation?
12 There is a trend towards more denser residential development (density development).
How does this affect the variables used in the hypothetical development method?
How does it affect the profit and risk factor compared with a conventional development?