The essense of investment is to understand and to control risk.  My work in creating systems which measure risk of portfolios of options trades, has led me to a similar approach for land & building development.  Sam Zell is the master of this approach; and Prof. Peter Linneman has written a very fine book, in which he outlines the realities from an econometric perspective.

While preparation and precision are important aspects of preparing developments; having a realistic perspective on risk; and an accurate historical perspective on the cyclical nature of real estate values is as important.

That said, I'd like to quote Sam Zell.  At a recent conference, he was asked by Linneman why he had never become a developer.

The bearded, gravelly-voiced mogul replied that development is too risky for his taste. "In that business, it helps to have an edifice complex," said Zell. "At least half of your rate of return comes from the psychological benefit you get from seeing the building go up. I never suffered from that particular affliction."

PACIFIC FOGG is not assoicated in any way with Dr. Linneman's enterprises (yet!) and presents this material as an advocate of this approach.   All Materials from the text book are copyrighted by Dr. Linneman.