Option 3; the motel concept, although proven and tried in a number of other large cities, is a new and novel concept in the subject city. Therefore, there is a high risk attached to the proposal. A novel land use such as this is called a pioneer land use. The appropriate profit and risk factors adopted for the 3 alternative uses are:

10% pa. A risky land use, riskier than the conversion to flats in an established residential area.

8% pa. A proven land use and relatively safe because warehouses of the same proposed design have sold well in this area.

15% per annum. A pioneer land use and therefore, a high risk use. The first time a motel has been built within an industrial area in this city. Therefore, a potential investor would require a high return as compensation for the high risk.