The Residual Land Value Method

Описание: Residual land value (RLV) is the maximum price a developer can rationally pay for a site after accounting for everything it will take to build and stabilize the project. Start with the estimated value of the finished asset at stabilization, usually from a discounted cash flow or by capitalizing the stabilized net operating income. Subtract all non-land development costs, hard and soft costs, financing, contingencies, leasing costs, and a required developer profit. The remainder is the “residual” attributable to the land, which becomes your land bid.

Example: If a completed warehouse would be worth $50 million at stabilization, and total non-land costs plus required profit are $43 million, the residual land value is $7 million. RLV is useful for site acquisition, highest and best use testing, and negotiating entitlements, because it shows whether rents, cap rates, costs, or density assumptions make the land pencil.

It is very sensitive to small changes in rent, cap rate, interest, and construction costs, so most teams run sensitivities before making an offer.

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