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