I think the decision to go with the CR is partly based on a process of elimination. None of the other options around Seven Seas Lagoon appear to be viable:
Grand Floridian - As mentioned there is no space. The only opinion would be to retrofit an existing building. However, occupancy is probably pretty high at this resort.
Poly - Same issue with space. Even if space could be found any new construction is unlikely. Apparently the land the Poly currently sits on is not that stable. Retrofit would again be the only option. But again, unlikely in a resort with high occupancy.
Land between Poly and CR - Space here for a new resort. However, it has been reported on these boards that the land will not support any construction.
CR - There is also a lack of space here. However, retrofit is an option (or as rumored a complete re-build of the N. Wing.). The land can support the construction and ther are no issues with high occupancy.
My opinion - There will either be a
DVC at the CR at some pint or there will most likely never be a DVC presence on the Seven Seas Lagoon.
Why CR over any other location?
From the info I have heard the next DVC resorts will be attached to existing resorts (such as BCV, BWV and BCV). If this is to occur there are only two options (assuming we only look at deluxes). They are the CR and the AKL (all other deluxe resorts lack space).
So why CR first?
If it will ever be made available (at least within the next 10 years), it is now. The N. Wing will be closing one way or the other later next year. That closure will be either to convert to DVC or to remodel and keep it as part of the current resort. The CR will not want to keep the N. Wing longer then necessary in its current state. So as you can probably imagine it is pretty clear that if DVC wants the CR than they have to take it now. There will be no option of doing a re-furb on the N. Wing and then converting to DVC in a few years. That just makes no financial sense.
Sorry for the long e-mail I have tried to provide all the info I have in a concise manner.