Hsc300 Week 1 Assignment
Adley—Week 1 DQ 2 Participatory Reply
Vertical development is both more lucrative and riskier for the developer, and therefore, complementary with financial theory that the greater the risk, the greater the return. In general, a vertical project will add significantly more multiple of value than a horizontal project. That is, with each addition of a developmental component and/or activity more value is created, ultimately making the project more lucrative. Conversely, horizontal development creates no operational value, as the land/lots are developed to sell.
According to Investopedia, “commonly, the higher volatility, the riskier the security (http://www.investopedia.com/terms/v/volatility.asp.) However, risk--or the uncertainty of loss--requiring a corresponding return, should be differentiated from volatility, or a measure of variation between like returns. Linneman & Kirsh (2012) suggest that uncertainty increases over time, it would stand to reason that the real risk derives from generating enough cash in the future to cover operational expenses and required return. In opposition, horizontal development again creates no operational value--or risk, as the land/lots are developed to sell. …show more content…
The value of raw and even improved land can wildly vary based on external and market forces beyond the developer’s control. For instance, land values could increase on the news of a proposed shopping center, but plummet on the finding of nearby environmental contamination. On the other hand, vertical development or a structure will have a reasonable and definite value, even when accounting for location and design (place and space). As a result, with less volatility, and yes more certainty, lenders are willing to lend more
Vertical development is both more lucrative and riskier for the developer, and therefore, complementary with financial theory that the greater the risk, the greater the return. In general, a vertical project will add significantly more multiple of value than a horizontal project. That is, with each addition of a developmental component and/or activity more value is created, ultimately making the project more lucrative. Conversely, horizontal development creates no operational value, as the land/lots are developed to sell.
According to Investopedia, “commonly, the higher volatility, the riskier the security (http://www.investopedia.com/terms/v/volatility.asp.) However, risk--or the uncertainty of loss--requiring a corresponding return, should be differentiated from volatility, or a measure of variation between like returns. Linneman & Kirsh (2012) suggest that uncertainty increases over time, it would stand to reason that the real risk derives from generating enough cash in the future to cover operational expenses and required return. In opposition, horizontal development again creates no operational value--or risk, as the land/lots are developed to sell. …show more content…
The value of raw and even improved land can wildly vary based on external and market forces beyond the developer’s control. For instance, land values could increase on the news of a proposed shopping center, but plummet on the finding of nearby environmental contamination. On the other hand, vertical development or a structure will have a reasonable and definite value, even when accounting for location and design (place and space). As a result, with less volatility, and yes more certainty, lenders are willing to lend more