An Analysis of the Development Decision Making Process Among Inner-City Apartment Developers

Deborah S. Levy and James Young

ERES from European Real Estate Society (ERES)

Abstract: There is a considerable amount of literature examining at which point developers should proceed with large developments. However, in many urban centres the growth of the apartment market is a relatively new phenomenon, especially in downtown areas previously dominated by office and retail development. While previous investigations have developed frameworks under which developers are likely to build and lease space in downtown areas, apartment markets in these centres carry considerably more risk. This is due, in part, to the large number of potential buyers and the diversity of the potential buyers, consisting of both owner-occupiers and investors. Also, there is no past pricing track record, or very little pricing track record, on which developers can base their development decision. Much of the existing literature focuses on price as a trigger for increased development activity and on the strategic advantage of a developer acting before other developers. As detailed price information was virtually non-existent when the first apartment developments took place in these urban centres, these models may have limited application in describing the decision heuristics that developers use in deciding when to build and what to build, particularly when there are few, if any, competing developers. Structured interviews are conducted to assess how developers viewed the risk profile of apartment development in downtown locations vis-‡-vis alternative development options such as offices and retail. Conclusions on how these decision frameworks affect more general models of development behaviour are examined.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2007-01-01
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