Landev, an Economic Model for Land Development

Residual Value

MV[26]Residual(0=none)(ˆ.2=Cap.Cash Flow)(ˆ1=% of net cost)(>1=value) 531  2
MV[32]Account for Residual Value (takes precedence) 531  1

The amenity package and operating properties are examples of revenues or values that may exist at the end of the project and that should be recognized as residual values in the model. Remaining land not sold in the context of the model, air rights, and redevelopment rights are other examples. The model in its simplified form allows for only one residual value account for all or any of these purposes. If an earnings projection is to be made, then the direct development costs which contributed to the residual value should be coded to the same account. The model will not allocate those costs to sales revenues, but will capitalize them and calculate capital gains tax liability on an assumed ending sale of these residual values. Even if they are not to be sold, their value should be recognized by simulating an ending sale. If this value is not recognized, return on investment measures will be understated.

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