Do I have any options here? - Posted by Dave

Posted by ray@lcorn on December 09, 1999 at 23:15:48:


Don’t know why I haven’t seen this post in the past two days… I must have been jumping up and down the board. Anyway, let me try to give you some guidance and an overview of the process.

You have lots of options. Whether you sell whole, develop, trade, lease, or subdivide, you will most definitely profit the most if you first derive a plan. In order to do that, you?ll need to do some research.

Much depends on your local market. You may want to read my post to Martin above titled “Know your market” in order to get a handle on what I’m talking about. You may already know your market, and if so, you’re one step further along the path. In your case, you have to determine and understand where your community is in the development cycle, as well as in the economic cycle.

You mentioned that there are industrial projects nearby… do you mean “industrial” as in purely manufacturing concerns, or in a general sense of some commercial, office and some industrial? The reason I ask is that $55T an acre is pretty steep for purely industrial land except in hyper-market areas. That kind of price is more like the raw land prices being paid for large scale retail development in most markets. The answer is important, because you will focus your efforts in two entirely different directions for commercial versus industrial development. The developers that do commercial usually don’t do industrial, and vice versa. If you are speaking of purely industrial, it also matters what state you are in, union status, the labor pool and quality available, and the other industries in the area. Let me know where you are and what specifically is in the neighborhood, and I can guide you to the right set of players. Your local planning department and/or economic development office will have the information you need. Also, if you don’t already know, find out what the current zoning is on the property, and what uses are permitted “by-right”, that is without a zoning change. Also find out what kind of use designation the property has in the community?s comprehensive plan. These items are VERY important.

By the way, when you go in to these government offices, be sure you ask for help with a smile! These folks have information at their fingertips that can literally be worth a fortune to you, and if you get teed off with the bureaucratic attitude you sometime find in these offices, you?ll never know what it was. Make up your mind to kill them with kindness.

In regards to commercial development, it also has a cycle. Oddly enough, the number and locations of Super Wal-Marts has become one of the barometers used to gauge the economic strength of an area. Outparcel development follows them, and usually after the outparcels, the small shop space, and the older spaces are full, then it is time for another big box (e.g. WalMart, KMart, Office Max, Circuit City, etc.) or anchored strip center to go in. Parcels suitable for this type of development must have major highway access and visibility, as well as proximity to demand generators such as homes, schools and institutions. Twenty five acres is about the minimum needed for a Super Walmart, and thirty five is the minimum for a strip center. (yes, 34 is close enough if it lays well) Again, market knowledge is key, as is location and neighborhood characteristics.

(Incidentally, the minimum distance between Super Walmarts in the strongest markets is presently about ten miles. This is down from fifteen miles just a couple of years ago. If your area has three or more spaced ten to fifteen miles apart, like mine does, then that is the best indication there is that your economy is hyperactive!)

Typically, the process of selling land for development will follow a predictable path. Whether its commercial or industrial, a developer will option a property and then line up the tenants he needs to make the deal work. He may option it subject to a zoning change, or utilities or almost anything else, depending on the situation. What he needs is control of the property in order to do the necessary preliminary inspections and engineering to establish the feasibility of the project. He won’t want to pay much for the option either, but remember that it is his money at risk for the preliminary inspections and engineering. We currently have a property optioned to a developer for a $10T option fee for six months, on a price of two million dollars for a two acre developed outparcel to a Super Walmart. What you want is a close, not to try and make a mint in option fees. It is very possible to structure the deal so that you stay in it in some fashion, but that needs to be structured correctly going in. Don’t try to do it on the fly. Once the deal is through the preliminary approvals from the tenants or end users, the zoning, utilities and roads are in place or committed to, then the property will close, and the development actually start. It can be as little as six months, and as long as a couple of years to get everything done, depending on the complexity of the project and the temperament of the local government.

If you choose to stay in the deal, get ready for a wild ride! Taking a piece of raw land and seeing it through to a developed project is one of the most frustrating, exasperating, fun, rewarding, risky and profitable parts of this business. It continues to be my favorite part of the business, even though it is getting harder and harder to find available markets. Don’t let me scare you… you can mitigate much of the risk by structuring the deal properly with an experienced developer. The risk lies in the upfront money and the carrying costs of the site preparation and construction before the tenants are in place. Considerable funds are needed to get the property through the preliminary stages of approvals and commitments before anything can be done about placing financing. Dealing with an experienced and well capitalized developer is key.

That’s the basics. Let me know some more details and I will be glad to try and help. It can be a blast! Like I said, it’s my favorite part of the business. If you are in the Southeast, we (my brothers and I) may be interested in taking a look at what you have in mind.


Do I have any options here? - Posted by Dave

Posted by Dave on December 07, 1999 at 14:16:16:

My family (my grandmother and her 4 bros and sis)have acquired a significant amount of land in the last few months. This land is from my great-grandmother passing away. It is roughly 34 acres that they used to farm. Now this property is sitting in a major development area. Meaning that industrial development has been taking place all around this property for about 5 - 10 years. Through the years she (my great grandmother) have been offered upwards of 25K and up/acre. She had refused in the past. Now the heirs are considering selling the property. The only hang up is, for the lack of a better term, to many chiefs. They really do not not know how to go about selling it. Now, if I was was to put together a plan, I am sure that I could convince them to go along. Now, I have handled some flips and L/O’s in the past but nothing like this. I was thinking that maybe try to package this to a developer myself. Actually, I would love to be involved with the development in some minute facet. Is this feasible, or even worth it. I have gone to the court house and actually pulled some of the land transfers of the surrounding area and the $/acre is astounding. For example, 4 years ago a 15 acre tract 2 miles down the road sold for 55k/acre. Now I know that the project dictates the price, but I was just wanting to know if I should pursue this. Any advice and direction would be appreciated.