Is this deal possible?

[Frank M.]

I am looking at the family house in Brooklyn, NY, needing to be sold. Its value is all in the parcel of land, not the building. 4000 sq ft, in Bensonhurst (NYers will know the area). It's 1/4 mile from the subway, close enough to be under 5 min walk, far enough to not hear the train. (For outsiders - the subway is above ground in this area). 

Now, if I back of napkin, $200/sq ft to build, this would give a cost of $200K/ 1000sq ft unit, and 12 units on the parcel. In this neighborhood, condo conversions smaller than this are going for over $600K. 

Disclosure - I am not an owner. The owners are other family members that I'd like to see get the best deal they can. I'm too far away to do anything 'hands on', just trying to get an understanding of what they might be able to do. I am in Massachusetts, where, even in a relatively expensive town, the MLS price per square foot average I see is $275 or so, which of course, includes the land. We use an estimated $150/sq ft building cost when evaluating a tear down or land purchase.

From this, it would seem the new 12 unit condo complex would sell for $7.2M, and cost $2.4M to build. If I am off on the construction cost, $250/sq ft would bump the cost to $3.0M. 

What I'd like is to understand the best advice I can give the current owners. There was a death in the family, and they are all looking to sell. They are thinking the current value is $1.6M for the land, but it seems too big a difference. This would mean a builder would stand to make over $2M profit?