Land Pricing in the Buckingham Case Study

Excerpt from Case Study :

This increased profitability of any REIT is an incredibly attractive feature to many smaller (and larger) investors when it comes to publicly traded REITs, as this allows for the direct profits of real estate earnings to be transferred to shareholders as dividends (and indirectly in increased stock value/equity) without requiring these investors to endure any of the hassle of real estate ownership. Public trading and ownership also allows for much faster capital growth and thus real estate holding growth, meaning that publicly traded REITs can grow much faster than private corporations and thus would easily -- and as history has shown, did easily -- grow to dominate the real estate ownership landscape in the United States.

Drawbacks to public ownership, of course, do exist. When compared to private corporations, public companies must keep a stricter eye on the short- and medium-term bottom line. There are also more owners and thus more decision makers that must be considered, stricter accounting and governance regulations that must be met, and a variety of other operational complexities that are placed under greater control and scrutiny in publicly traded companies.


The amount of new development that CBL specifically and REITs generally should engage in depends on a number of factors stemming from the market and industry at large as well as from inside companies themselves. Market forces including the pace of overall economic growth nationally, regionally, and locally would be one limiting factor on development, especially in the current era. No company should be engaging in extensive development currently except in areas that are identified as having significant unmet demand for retail services. Other external forces that are also more local in their influence include barriers to development imposed by infrastructure imitations, taxation, and similar factors. Risk aversion is also a limiting factor when it comes to new development, and this is one that applies to CBL significantly. As one of the largest REITs in the country, stability is key to CBLs continued growth and profitability, and engaging in high-risk ventures such as new developments is not something the company should engage in frequently, as is made explicitly clear in the description of the company provided in the case study.

Determining a specific amount of leverage that CBL should limit itself to in terms of new development deals would require a much more extensive and detailed analysis and description than is provided in the case study. A minimal amount of assets should be invested in new developments, though, perhaps as low as 5% of total company holdings. This will ensure not only more stable profits for shareholders, but adequate capital for promising new acquisitions.

Retail Strategy

The detailed pricing breakdown provided above also outlines the ideal retail strategy given the demand estimates and cost outlays presented in the case study. The seventy acres of Big Box retail space and the seventeen-and-a-half acres of specialty retail/entertainment space will precisely meet the projected unmet demand in the area, and the twenty-five acres remaining after the wetlands and apartment units have been set aside could likely be used at least partially to augment the site's retail offerings and generate greater competition with other nearby retailers, such as the enclosed mall. Retail space is by far more profitable to CBL than apartment or office space, and thus maximizing the amount of retail space included in the development of the site is quite obviously the ideal way forward with this development. Building retail space that will not be filled by retailers, however, would be detrimental to CBL's bottom line and its success with this new development, so extra retail in the twenty-five unspecified acres will have to be limited.

There are significant concerns with this development, including the proximity…

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