Quote of the day – South Loop land is worthless for apartments

Every successful real estate developer I’ve ever known has distilled his experience into a few simple calculations that enable him to quickly analyze very complex deals and decide to move forward on or reject a deal. Add a gut feeling, based on a lot of knowledge, for the viability of the site, and an analyst may be directed to produce a very complex spreadsheet that justifies the developer’s decision, and appears to be the basis for it.

Steve and Randy Fifield recently sat down for an enthralling chat with students in Remo Picchietti‘s entrepreneurship class at DePaul’s Kellstadt Graduate School of Business.

Steve is a self-described quant whose early ambition was to become a college math professor. Here’s one of the rules of thumb he shared with the students:

Rents are low enough in the South Loop that land today is basically worth nothing for apartments.

Every ten cents of rent is worth about $13,000 a unit in land value. If rents in River North are $2.90 a [square] foot and they’re $2.20 in the South Loop – which are facts – that 70 cents means that the site in River North … that’s a [large] swing between them.

What it really means is that if the land is worth $50,000 a unit in River North, it’s a minus on that site right there [pointing to the South Loop].

The segment that includes the above quote begins at about 38:00 in the above video. If you have time to watch the whole thing, we’re confident you’ll find it fascinating.

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