Wealth Opportunities in Commercial Real Estate: Management, Financing, and Marketing of Investment Properties

Assessing a Construction Project

Imagine you are driving in your car and you see a large vacant lot near a hospital with a huge sign on the property captioned “Land for Sale—Can Build 60,000 Square Foot Medical Office Building.” The sign also has a broker's name and phone number.

How do you determine whether or not a project makes sense on this piece of dirt? What are the criteria for judging if a development project is viable? The sign suggested building a medical office building. The land is located in close proximity to a hospital. However, the question still remains: Is a medical office building the highest and best use for this property? Would it be better to build medical condominiums or a mixed-use project with retail in the area fronting the street, reserving the balance of the development for medical office space? What if there is already a medical office building on the hospital's campus that is almost entirely vacant, but the hospital employees are having a difficult time finding affordable living space? Would an apartment building make more sense? If you decide you would like to move forward and build a project, what should you pay for the land?

The first step is to collect additional information about the project. You call the broker listed on the “for sale” sign and ask general questions. Is the property still for sale and, if so, what is the asking price? How long has the lot been for sale? What is the profile of the seller? What is the seller's motivation for selling? ...