Infrastructure Based Real Estate Investing
Capital Investment in Infrastructure is always an interesting component of Real Estate
investing. In my experience it can be one of the most positive influencing factors in property appreciation,
however, it can never be taken for granted. During the examination period of a potential investment an investor
discovers that sewer and water is going in or that a new road is being constructed, and without a great deal of
consideration the investor jumps and secures as much of the surrounding property as possible regardless of the
timing.
It is this investment timing that I am most interested in here today. To help determine the best timing of an
investment I find it helpful to differentiate the type of infrastructure change. First, separate the target
properties into Direct and Indirect Impact Investments. A direct impact investment is one that is immediately
impacted by the announcement of an infrastructure project. An Indirect Impact Investment is one that is not
immediately affected by the announcement or the early stages of the infrastructure but its value will be
significantly improved by the completion of the project.
Lets compare two properties located outside Raleigh, NC, home of North Carolinas Research Triangle Park. The first
property is a direct impact property located contiguous Interstate 85. The second property is approximately
one-half mile away from the first and has frontage on a secondary road leading to the Interstate 85
intersection.
This area is considered a bedroom community for the greater Raleigh area and is in itself growing at a rate faster
than Raleigh and Durham. The I-85 corridor had been developing well prior to the announcement by the North Carolina
DOT regarding the re-construction of the highway from Raleigh north to the Virginia State Line, (40 miles of
construction). This project would eventually take eight years, cause major delays, re-route traffic and have a
major impact on the economy and expansion of the entire corridor.
The first response of most investors was to move out of the area and invest in other locations. However, for those
who analyzed the potential and adjusted the price, timing and selection of properties in this area turned out to be
a very profitable investment. Let me explain.
Direct Impact Sample Analysis
The first property is adjacent Interstate 85, in a very active market and priced around $100,000 per acre prior to
the highway re-construction announcement. Property value was tied directly to business activity generated by its
access to Interstate 85. Property value was evaluated as a Direct Impact Investment over the 8 year life of the
infrastructure project. The duration was determined based on project length from announcement through
completion
Upon announcement of the project the value of the property dropped from $100,000 per acre to about $70,000 per acre
and remained at that level for the first three years of the investment.. In the fourth year of the project life the
property began to gain in value at about the same rate as other properties not aligned with the highway, still
there was no positive influence caused by the highway project. The primary growth in value came toward the end of
the highway project, eighteen to twenty-four months from its completion.
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