Subdivision Case

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Submitted By mkmuffin9
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Case Study: Absorption of Subdivision Lots in Sandy, Oregon

Sandy is a small city along Highway 26 between Portland and Mount Hood, with an estimated population of 8,420 according to PSU’s Population Research Center. At the height of the recent housing boom in 2006, there were 193 housing starts in Sandy. Last year there were 45. By my count there are nearly 450 unbuilt vacant lots, with street improvements and all utilities to the site. That is a ten year supply at current absorption. At the south end of town, the Snowberry Subdivision has about 100 vacant and unsold lots.


Let’s look at three scenarios of lot absorption for our subject property with its 100 unsold lots. The first and most optimistic premise is indicated below. This premise assumes that the lots will sell out in three years at a price of $90,000 per lot. This would have been a typical analysis when the market was at its peak – just a continuation of the recent past, based on historical absorption of other subdivisions in the local market.

For the sake of simplicity, all revenues are assumed to be received at the end of each year, so we are not going to be doing a monthly absorption. The goal is to determine the present value of the whole subdivision. This could be thought of as a wholesale, or bulk value, of the lots, as compared with the individual, or retail lot value. Thus, while the retail value of the lots are $90,000 each, or $9 million in aggregate, the bulk value is $69,580 per lot, or $6,958,000. So even under this optimistic model, the bulk value is 77% of the aggregate retail lot value.

This is summarized on the following Excel chart.


Your assignment is to develop two additional scenarios, following the layout shown above. However, the assumed pace of absorption, the lot pricing, and the discount rate will be different than those of the original model.…...

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