Consider two adjacent properties near the airport in the suburbs of a growing metropolis. Property A is a warehouse with a long-term tenant. Property B is a cornfield. The corn harvest just pays the property taxes, but the land is zoned for industrial warehouse) development. Warehouses are currently selling at cap rates cash yields) of around 10% in this market, and warehouse rents typically grow at 2% per year. You expect that the cornfield will grow in value at a rate of 10% per year for the next few years. Suppose you own the cornfield. Use what you know and can reasonably assume about risk and return, to tell me whether you should:
a) hold the corn field undeveloped as a speculative investment for the time being, or
b) immediately either sell or develop the corn field. Support your answer with a tight quantitative argument.

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The Answer of Consider two adjacent properties near the airport in the suburbs of a growing metropolis. Property A is a warehouse with a long-term tenant. Property B is a cornfield. The corn harvest just pays the property taxes, but the land is zoned for industrial warehouse) development. Warehouses are currently selling at cap rates cash yields) of around 10% in this market, and warehouse rents typically grow at 2% per year. You expect that the cornfield will grow in value at a rate of 10% per year for the next few years. Suppose you own the cornfield. Use what you know and can reasonably assume about risk and return, to tell me whether you should:
a) hold the corn field undeveloped as a speculative investment for the time being, or
b) immediately either sell or develop the corn field. Support your answer with a tight quantitative argument.

Consider Two Adjacent Properties near the Airport in the Suburbs