Redevelopment Decisions for Commercial and Industrial Properties
Munneke, Henry Jay
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https://hdl.handle.net/2142/72424
Description
Title
Redevelopment Decisions for Commercial and Industrial Properties
Author(s)
Munneke, Henry Jay
Issue Date
1993
Doctoral Committee Chair(s)
Brueckner, Jan K.
Department of Study
Economics
Discipline
Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, General
Abstract
The empirical work in this study serves as a test of the principle that redevelopment of a property will occur when the value of the existing bundle, minus demolition costs, is less than or equal to the price of vacant land. The study follows the work of Rosenthal and Helsley, "Redevelopment and the Urban Land Price Gradient" (1993), which empirically examines the redevelopment of single-family dwellings. In contrast to Rosenthal and Helsley, this study focuses on commercial and industrial properties in the City of Chicago.
The difference between the value of a parcel in its redeveloped state and its value without redevelopment is used to predict the probability of redevelopment. A parcel for which the predicted value with redevelopment is high relative to the value without redevelopment is likely to be redeveloped. The standard two step procedure has been utilized to avoid the problems associated with sample selection bias that may be present in the estimation of such a model.
The empirical results support the hypothesis that land is redeveloped when its value in the redeveloped state is high relative to its value in the current use. In both the commercial and industrial cases, the value of a developed parcel falls as distance to the CBD increases, while the effect of distance on the value of a redeveloped industrial parcel is insignificant. A southern regional location substantially reduces the value of parcel relative to a northern location. An increase in the capital intensity of a parcel leads to an increase in the unit price of a parcel and to a decline in the probability of redevelopment. The estimated coefficient on the natural logarithm of lot area is consistently estimated to be less than one in the unconstrained models. This result indicates that the relationship between the value of parcel and its lot area is concave, not proportional. Parcels with larger lot areas have greater probabilities of being redeveloped. Sample selection bias is prevalent in the commercial models, but does not play a significant role in the industrial models.
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