Premises:

- Much of the waterfront was never developed aesthetically and instead was left to industry and commerce.
- Today, waterfront properties are generally seen as prestigious, as evidenced by the large sums paid for homes along the beach front

Conclusion:
To make a large profit, buy urban waterfront lots and erect residential buildings on them.

Much of the waterfront was developed as industry/commerce area. Today, residential properties along the beach are seen as prestigious. We don't know how many such current residential properties there are and how far they are from industry/commerce area. They could be very few and away from industry, we don't know.

We are concluding that to make a large profit, buy "urban" waterfront lots and make residential buildings. The "urban" waterfront would be industry/commerce area. We don't know whether people would be willing to pay large sums for residential places in these districts.
Hence (B) supports the claim made about urban waterfront properties.

D. Many coastal American cities are encouraging developers to rehabilitate the waterfront through tax incentives.
Developers would be getting tax incentives to rehabilitate waterfront areas. So their cost might be lower than the cost of setting up residential properties inland. But to make profits, they will still need people to buy these properties. If people don't buy, whatever the cost may be, they may not be able to even recover that.

B is the best answer in this scenario