| Capital Investment in Infrastructure is an | | | | other properties not aligned with the highway, still |
| interesting component affecting Real Estate | | | | there was no positive influence caused by the |
| investment. It can be one of the most positive | | | | highway project. The primary growth in value |
| influencing factors in property appreciation. Hence, | | | | came toward the end of the highway project, |
| it can never be taken for granted. Frequently, an | | | | eighteen to twenty-four months from its |
| investor will discover during the examination period | | | | completion. |
| of a poential investment that infrastructure | | | | Indirect Impact Sample Analysis |
| improvements are planned. These improvements | | | | The second property is well off the Interstate |
| may be water and sewer expansion adjacent the | | | | and has little or no value related to the interstate |
| property or new road to be constructed. In many | | | | driven commerce. Its initial value was $12,000 per |
| of these instances, and without a great deal of | | | | acre and continued to grow at a rate consistent |
| consideration, the investor aquires as much of the | | | | with value driven by non-interstate factors. |
| surrounding property without regard to the timing | | | | However during the last two years of the |
| of the purchase. | | | | highway project the value grew substantially and |
| The focus of this article is how best to determine | | | | was in fact pulled by the Interstates commerce |
| the timing of the acquisition of an investment | | | | generating capability. The transition from no |
| property impacted by infrastructure improvement. | | | | impact to high impact was created by the general |
| To do this, I have found it beneficial to first | | | | maturing of the area and the much increased |
| differentiate the type of infrastructure change. | | | | commerce generating capacity of the improved |
| Begin by separating the properties under | | | | infrastructure. |
| consideration into Direct and Indirect Impact | | | | It is key to notice that the quality of the |
| Investments. Properties that are immediately | | | | investment is higher for the land investor if the |
| impacted by the announcement of an | | | | investment is made in the Indirect Impact Parcel |
| infrastructure project are considered a Direct | | | | and the timing of the investment can make a |
| Impact Investment. Indirect impact investments | | | | massive difference in the rate of return. In |
| are those not immediately affected by the or the | | | | comparing indirect impact to direct impact |
| early stages of the improvement, however, its | | | | properties, the compounded rate of value growth |
| value wwill be improved significantly by the | | | | with respect to the year invested through to the |
| project completion. | | | | end of the project showed substantially higher |
| Take the example of two properties located | | | | returns for the indirect impact property. |
| outside of Raleigh, North Carolina, the home of | | | | The really interesting thing about these results is |
| North Carolinas Research Triangle Park. The first | | | | that for the indirect impact property, years four |
| property (direct impact property) is located | | | | and five were outstanding however year six fell |
| contiguous I-85 at an intersection with a | | | | off to the lowest level during the project life. This |
| secondary road. The second property is | | | | is primarily due to the limits of I-85 to continue to |
| approximately one-half mile away from the | | | | drive value. As a rule most of the growth in value |
| intersection and has frontage on the secondary | | | | was related to the investment in the highway |
| road leading to the I-85 intersection. | | | | capital improvement. The investment in I-85 over |
| This area is considered a bedroom community for | | | | the long haul created a gain in revenue generating |
| the Raleigh metropolitian area. The are is growing | | | | capability which forced the property value upward. |
| at a faster rate than either Durham or Raleigh. | | | | It is important to note that the growth in the |
| The Interstate 85 corridor had been experiencing | | | | interstate traffic after the completion of the |
| sustainable growth substantially prior to the NC | | | | project is slow and its ability to create additional |
| Department of Transportation announcing | | | | value would also be slow. |
| highway re-construction of from Raleigh north to | | | | These properties will not see really strong growth |
| the Virginia State Line (approximately, 40 miles of | | | | until a commerce center is established at this |
| construction). The project would ultimately take | | | | intersection. With capital investment in a |
| eight years to complete, create major delays, | | | | commerce center there will be value growth |
| re-route traffic and have a substantial impact on | | | | similar to the growth we saw with the highway, |
| the local economy and expansion of the entire | | | | but it will occur in a shorter cycle time. I would |
| corridor. | | | | therefore argue that the risk component would |
| The first response of most investors was to | | | | be higher and the timing would be more crucial. |
| move out of the area and invest in other | | | | Summary |
| locations. However, for those who analyzed the | | | | In summary, for an investor to successfully select |
| potential and adjusted the price, timing and | | | | a high yielding land investment with changing |
| selection of properties in this area turned out to | | | | infrastructure certain conditions are in play: |
| be a very profitable investment. Let me explain. | | | | 1. The announcement of the change must not |
| Direct Impact Sample Analysis | | | | directly impact the target property in a negative |
| The first property is adjacent Interstate 85, in a | | | | way. . |
| very active market and priced around $100,000 | | | | 2. The investment property will increase in value |
| per acre prior to the highway re-construction | | | | at the local, not project, driven rate in the early |
| announcement. Property value was tied directly to | | | | years of the project. |
| business activity generated by its access to | | | | 3. There must be more than twenty-four months |
| Interstate 85. Property value was evaluated as a | | | | remaining life in the project. |
| Direct Impact Investment over the 8 year life of | | | | 4. Due to its higher yield, the Indirect Impact |
| the infrastructure project. The duration was | | | | Investment will create less risk for the life of the |
| determined based on project length from | | | | project. |
| announcement through completion | | | | 5. Investment timing is of utmost importance. |
| Upon announcement of the project the value of | | | | 6. Direct Impact Investments offer a lower yield |
| the property dropped from $100,000 per acre to | | | | and higher risk during the project life. |
| about $70,000 per acre and remained at that | | | | I have been able to employ this thinking over the |
| level for the first three years of the investment.. | | | | last five years and have found the concept |
| In the fourth year of the project life the property | | | | applies to any long term capital project. |
| began to gain in value at about the same rate as | | | | |