Indirect Impact Sample Analysis

The second property is well off the Interstate and has little or no value related to the interstate driven commerce. Its initial value was $12,000 per acre and continued to grow at a rate consistent with value driven by non-interstate factors. However during the last two years of the highway project the value grew substantially and was in fact pulled by the Interstates commerce generating capability. The transition from no impact to high impact was created by the general maturing of the area and the much increased commerce generating capacity of the improved infrastructure.

It is key to notice that the quality of the investment is higher for the land investor if the investment is made in the Indirect Impact Parcel and the timing of the investment can make a massive difference in the rate of return. In comparing indirect impact to direct impact properties, the compounded rate of value growth with respect to the year invested through to the end of the project showed substantially higher returns for the indirect impact property.

The really interesting thing about these results is that for the indirect impact property, years four and five were outstanding however year six fell off to the lowest level during the project life. This is primarily due to the limits of I-85 to continue to drive value. As a rule most of the growth in value was related to the investment in the highway capital improvement. The investment in I-85 over the long haul created a gain in revenue generating capability which forced the property value upward. It is important to note that the growth in the interstate traffic after the completion of the project is slow and its ability to create additional value would also be slow.

Until a commerce center is established at this intersection neither property will see really strong growth . With capital investment in a commerce center there will be value growth similar to the level growth we saw with the highway; however, it will occur in a shorter cycle time. Hence, I would argue that the risk component would be higher and the timing would be even more crucial.

Summary

In summary, for an investor to successfully select a high yielding land investment with changing infrastructure certain conditions are in play:

1. The target property must not be directly impacted by the announcement of the change in a negative way.

2. The investment property will increase in value at the local, not project, driven rate in the early years of the project.

3. The project must have more than twenty-four months of remaining life.

4. Due to its higher yield, the Indirect Impact Investment will create less risk for the life of the project.

5. Timing is of utmost importance for the investment.

6. Direct Impact Investments offer a lower yield and higher risk during the project life.

I have been able to employ this thinking over the last five years and have found the concept applies to any long term capital project.