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Lecture 8

16234 Lecture Notes - Lecture 8: Opportunity Cost, Market Capitalization, Naming Rights

3 pages53 viewsFall 2016

Design, Architecture and Building
Course Code
Vince Mangioni

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Lecture 8
Hypothetical Development Method of Valuation
Hypothetical development: is the process of deriving a land value, or price to be paid for a site which is not
developed to its highest and best use by hypothetically developing it, then systematically stripping back the
components of the development including construction costs, profit and holding costs to arrive at the value
or price to be paid for the property as a development site
When and why is it used?
o To determine the value of land against the existing use when the existing use may not be its highest
and best use
o To measure the value of land when there are no vacant land sales available
Gross Realisation
o Are the sales of the finished product, units, townhouses, office bldg. that is adopted as the starting
o Sales are derived from the market place via sales of similar property sold with adjustments. The
primary adjustment being for time, location and quality of improvements
Commercial Buildings
o Office Buildings
Gross realisation is established by determining the market value of a property using
capitalisation of the net income
Gross Rent Collected Outgoings = Net Rent
o Net Rent is capitalised at a market capitalisation rate to determine that value of the property
o Income rent (office, retail, roof top), parking, naming rights, signage rights
o Outgoings council rates, water rates, land tax, insurance, insurance, repairs, management fees,
planned maintenance, common power/water
Unit or Townhouse Development Site
o Gross Realisation in residential development is by direct comparison of newly completed units or
townhouses in nearby comparable developments
o What will the completed units or townhouses in my proposed development sell for = Gross
o E.g.
o One of the key issues to remember when deducing sales from the market, is the number of
dwellings in the sale block compared to the number of dwellings in your development
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