Real Estate Finance

Real Estate Development Decision
Name
Institutional Affiliation

Real Estate Development Decision
To develop “A” quality 1 million office building is much worth than leasing the office for a 1 million leased offices. Time value of the money stipulates the value for money increases with increases in time. The situation seems to be same at the end of construction of the office it will have long-lasting cost minimization than the lease. Developing will enable the organization on its property which acts as assets than relying on a lease which at the end of the lease period the project ceases to be yours.
The internal rate of return (IRR) of 35% on equity of investment apartment building is better than IRR of 12% on supermarket equity. Ideally, investors are interested with profit which in this case what they receive on their investment, therefore they will be much willing to invest in building apartment since at the end of duration the return on the equity is much higher than in the case of investing in the supermarket which has a much lower return.
The interest rate on loan is an extra fee charged on amount issued out to the client. A cost-benefit analysis indicates that most investors are keen to lower cost so that they increase profit on what they earn. The interest rate at 7% is cheaper than 7.5% this because a person getting a loan at 7% pays less than the person paying the same loan at 7.5% for the same duration on the same amount of the loan. The amortization schedule for 7.

5% is much expensive than the same amortization schedule under 7%. Therefore 7% is ideal than 7.5%.
The analysis of the options such as opportunity to developing a 400,000 sf warehouse facility for General Foods in suburban Philadelphia and lease option. Critical considerations should be based on cost-benefit analysis on part of investors. Critical analysis of the situation indicates developing the property is much cheaper than leasing than purchasing it at an exorbitant price of $22 million. Developing the property cost only $20 million at period of 10 months. Investor can secure a cheaper loan to facilitate building the property much faster and easier than in case leasing the building at $2 million per annum. After completion of the property is estimated to generate income much faster since anticipated occupancy level for the property is 96%. Generated income from the investment is expected to be realized within a short after investment. The investor can invest in the project since it’s very viable and cheaper than leasing at $2 million per annum and purchasing the same property at $22 million.