What's the rationale for build and hold over buy and hold?
Say a company is considering whether to buy and hold an asset or build and hold the asset. 

Assume that there are many buyers and sellers of comparable assets. Assume the company has an unlimited capacity to manage construction projects. For simplicity, ignore transaction costs and changes in the market.

It's better for a company to build an asset instead of buying it only if construction provides a preferable risk/reward balance than buying provides.

Whether the company buys it or builds it, the income relative to the value of the asset after the date the construction and leasing is, or would have been, completed is the same, so we can eliminate that from consideration.

So the decision really comes down to a comparison of 

A) the risk relative to the net gain (appreciation and income) from holding a bought asset during the prospective construction and marketing period [i.e. the risk adjusted return on the stable asset during a period of X duration]

to 

B) the risk relative to the value created during the construction and marketing period [i.e. the risk adjusted return on constructing an asset over a given period of X duration]

If the risk adjusted return of B over a period is preferable to that of A over the same time, then wouldn't B be preferable to A over the next period of the same duration? 

In other words, if it was better to build real estate than to hold it from Jan 2015 to Jan 2017, and if nothing changes, then wouldn't it still be better to build an assets from Jan 2017 to Jan 2019 instead of holding an equivalent asset? If so, shouldn't the company sell the project and begin another construction project instead of holding it? 

The common rationale  ('I can build it for less') seems to forget the opportunity costs of building the asset (unless the builder has excess construction capacity) and of holding the asset.

Yet sophisticated real estate companies often build their own assets. I have a hard time believing they're all forgetting about opportunity costs, so I suspect I'm not considering something or that one of the assumptions I made earlier in this post is the issue (e.g. they can't find the asset they want on the market).
[{"id": "g8lcmz1", "text": "I think your problem is that you're looking at companies that are going to hold either way. It's not \"build vs. hold,\" it's \"build vs. buy\" on an asset they were always going to hold. You're just comparing two different ways of acquiring, essentially. And most companies that have unlimited capacity to manage construction projects are developers who derive much higher ROI from building.", "replies": [{"id": "g8lhe2e", "text": "Correct. When I worked in development, we would develop only if our YOC through stabilization was 125bps+ above acquisition of a similar property. That delta pays for the risk of managing a project vs buying an existing asset.", "replies": [{"id": "g8m1aqe", "text": "Only 125bps?  What kind of buildings?", "replies": [{"id": "g8m1etu", "text": "Average deal size I worked on was $125MM. Largest was $550MM.", "replies": [], "depth": 4}, {"id": "g8n3rnw", "text": "The exit cap here is a huge. If you're building to a 5.75 with a 4.5 exit, that's very different from building to an 8.75 with a 7.5 exit.", "replies": [{"id": "g8nrfld", "text": "Build at a 5.50 with an exit of 4ish was pretty common.", "replies": [{"id": "g8o7bn3", "text": "West Coast baby", "replies": [{"id": "g8qlthd", "text": "Most of our projects were coastal, but a few inland like Denver, Houston, Dallas, etc. those \u201csecondary\u201d markets were still really strong. Lots of capital out there seeking returns.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g8ldhl5", "text": "&gt; Assume the company has an unlimited capacity to manage construction projects. For simplicity, ignore transaction costs and changes in the market.\n\nyou shouldn't assume these things at all and you will answer your own question.  \n\nAre you talking primarily developers doing investment type building (ie they won't be a tenant in what they build) only?  \n\nThe answer to your questions is it depends on the developers strengths, ability to raise funds, and the objectives of their investors.  Many developers are looking to develop and buy existing at the same time, and potentially for different investors.  If they sell performing assets without the ability to replace that capital that can cause problems and there aren't an unlimited amount of projects out there to break ground on.", "replies": [], "depth": 1}, {"id": "g8m1g9e", "text": "You can build exactly what you want. Trends change - people want different amenities, parking, security, etc. New build will command higher rents, so asset will be worth more once leased up.", "replies": [], "depth": 1}, {"id": "g8m88s5", "text": "Most developments become feasible when there is a spread on cost of building vs buying. In other words with all else being equal (ie same building, same tenant, same cashflow) finished income producing product might sell at \u201cX\u201d cap rate, whereas if you buy land and build and lease, you would expect to get X + Y income yield to cost. \u201cY\u201d being the spread and effectively the gain/profit in building vs buying.\n\nEdit: to add to this, when \u201cy\u201d becomes big enough investors/developers will seek to build rather than buy.", "replies": [], "depth": 1}, {"id": "gf3nynu", "text": "&gt;I have a hard time believing they're all forgetting about opportunity costs, so I suspect I'm not considering something or that one of the assumptions I made earlier in this post is the issue (e.g. they can't find the asset they want on the market).\n\nSure, there are opportunity costs involved, but companies firmly adhere to their investment strategies, so one might not be their focus. Developers enjoy much greater IRRs compared to acquirors of stabilized assets, but with greater returns comes greater risk, considering they're largely spec developments.\n\nBut if build vs. buy is the question, it comes down to the development yield with an entry cap of an existing asset. Investment committees often answer this question using a 150-200 bps development spread, which explains why the overall returns are higher if you assume the same exit cap for both the prospected development and the stabilized asset (greater cap rate compression).", "replies": [], "depth": 1}]