Question

12. You want to find a site of at least three acres on which to build your warehouse. There are two vacant industrial site available for purchase.

• Parcel A contains 3.20 acres. Asking price is $7.50 per SF of site area. The entire site is usable. Assuming that you pay 95% of the asking price, what would you pay for Parcel A?
• Parcel B also contains 3.20 acres. The asking price is $6.95 per SF, but there is a 0.5 acre wetland in the center that needs to be filled to make the site buildable. If you buy a mitigation credit from a private wetland “bank” you can get a permit to fill in the wetland. The mitigation credit costs $250,000 per acre of wetland. Assume that you pay 95% of the asking price and spend the money to mitigate the wetland. How much would Parcel B cost altogether? How much is that per SF? Which site is the better choice, and why?

Answer 1

Cost outlay of Parcel A :

Number of square foot = 3.2 acres x 43560 SF= 139392 SF

Cost per SF = Asking price per SF X 95% of asking price

Cost per SF= $7.5 x 95%= $7.125

Cost outlay for parcel A = 139392 SF x $7.125 = $993,168

Cost outlay of Parcel B:

Cost per SF = Asking price per SF X 95% of asking price

Cost per SF= $6.95 x 95%= $6.6025

Cost of land 139392 SF x $6.6025 = $920,336

Additional cost spent to mitigate the 0.5 acre of wetland into usable conditios is $250,000 for an acre x 0.5 acre = $125,000.

Cost outlay for Parcel B

Cost of land 139392 SF or 3.2 acres = $920,336

Mitigation credit cost for 0.5 acre = $125,000

Total cost outlay for Parcel B $1,045,336

Cost of Land per SF = $1,045,336/139392 SF = $7.5 per SF.

Since, Parcel A's cost per SF is $7.125 is LESS THAN the Parcel B's cost per SF of $7.5 per SF, Parcel A is better choice.