Posted by ray@lcorn on October 07, 2003 at 20:31:47:
Pam,
If this is a deal, then it an option is the least costly way of controlling the property for a finite period of time. I say “if” because the price is ten times what typical undeveloped industrial land sells for in many markets. But you’re in CA, and I learned a long time ago you guys have a different rule book.
Assuming the price is in line with the market, then I would want an option for at least one year, with provisions for renewals. Industrial deals from scratch take a long time to put together, especially in an iffy economy.
As too fee, much depends on what you have in mind to find the end user. If you have one or more specific prospects in mind and are fairly certain of a deal, then you might feel better about a higher fee. As a practical matter I would try to let the seller name the price first. No matter what it is, offer less.
You’ll have to make up your own mind as to how high you are willing to go based on how sure you are of your ability to find the end user, or a developer for the end user. Much depends upon your experience level, contacts, and deal making ability in securing the end user.
If you don’t have experience in industrial deals and developpment, you might want to do some due diligence with the local economic development office as to the suitability and pricing of the deal. My guess is that they are aware of it if it is in fact a viable site. Most communities are finding prime industrial land becoming scarce, and seek to make the most of their current stock.
Thanks in advance for any advice from the experts on this board on whether I should seek out an experienced partner when considering purchasing industrial land, or whether such a purchase could be done with a good real estate attorney guiding me. I have done a few deals but only residential. I am not soliciting a partner here, just wondering if purchasing industrial land is so involved and complicated that I should start my search for a partner now before further involvement on my potential deal with a very motivated seller of this land?
Re: Commercial/Industrial Land Question - Posted by ray@lcorn
Posted by ray@lcorn on October 07, 2003 at 08:21:11:
Pam,
It sounds as if you’re contemplating a partner as an access to experience and knowledge rather than financial reasons?
All property types have peculiarities, and industrial properties are no different. Experience with a property type is always preferrable to none, but everyone has to be a rookie once. Whether you gain experience by flying solo or with a co-pilot is largely a matter of individual temperament toward risk.
What is likely more important is the nature of the deal itself.
The key question is whether this is a raw land deal that must be developed, or raw land in an already developed industrial park/area, or already developed with building(s) and infrastructure? The next question is there a tenant or user in place or proposed or is the property vacant?
In my opinion, if it is a development deal then you would be better off with an experienced partner. I say that because development is the riskiest sector of the commercial real estate business, highly capital intensive, and requires the expertise to deal with the various permitting and licensing agencies as well as contractors, engineers and architects. You also need expertise in market feasibility as well as tenant procurement and lease negotiation.
However you may just be speculating on a piece of land in an already developed area with no intention of doing anything than marketing it to an end user. If that’s the case, then the job is much easier, and a good RE attorney can steer you through the due diligence issues of title, zoning, infrastructure rights, etc.
With a little more info I might be able to offer more specific suggestions.
Ray,
Thanks for your detailed response. I want to market to an end user. Here is some more information on this potential deal, and I look forward to your further guidance:
It’s undeveloped, 6 1/2 acres, already zoned for manufacturing/industrial. There are 4 dilapidated houses on the otherwise vacant land that were grandfathered in when zoning went mfg/industrial. The land is adjacent to a major highway. There are 8 contiguous parcels involved, all owned by same person who lives out of state. Owner had it on market with a realtor for 1.5M. Said he would have taken 1.2M. During the listing period, an investor offered 1,114,000.00, but backed out after they found out they’d have to pay realtor commission. Listing has now expired, and owner gets hold of me and says he “really wants to sell now”.
Am I on the right track of thinking of proposing to owner a 6-month option, (drawn up by an attorney)? Any guidelines on an option price and resell price for this size of a deal?