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# Real Estate Development

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A real estate developer is planning to build an apartment building specifically for graduate students on a patch of land adjacent to Arapet College in Madrid, Arizona. Four types of units can be included in the building: efficiencies, and one-, two-, and three-bedroom units. Each efficiency requires 500 square feet; each one-bedroom apartment requires 700 square feet; each two-bedroom apartment requires 800 square feet; and each three-bedroom unit requires 1,000 square feet.

a. What is the optimal solution to this problem?

b. If the developer built one efficiency unit, what effect does this have on the total potential rental income? Justify your answer.

c. Given the solution associated with the sensitivity report above, explain why the developer does not utilize the 40,000 square feet authorized by the zoning ordinances.

d. By how much does the developer's monthly potential rental income increase if the zoning board allows the developer to build five more units in the complex?

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##### Solution Summary

The solution addresses how a real estate developer is planning to build an apartment building specifically for graduate students on a patch of land adjacent to Arapet College in Madrid, Arizona. Four types of units can be included in the building: efficiencies, and one-, two-, and three-bedroom units. Each efficiency requires 500 square feet; each one-bedroom apartment requires 700 square feet; each two-bedroom apartment requires 800 square feet; and each three-bedroom unit requires 1,000 square feet.

##### Solution Preview

a) Look at the final value column. The optimal solution involves building 8 1-bedroom, 22 2-bedroom and 10 3-bedroom units.

b) This would reduce the total income by \$100. The answer for this is provided by the "reduced cost" column. Look at it this way. Since the maximum # of units (set at 40) is binding, to build 1 efficiency suite, you would have to reduce 1 of the other units. The differences in rent between the efficiency ...

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