How much value add is from raw land to land with approved plans?

Question

There is a property of 8 acres costing around 3.5M (approx 10$ or less per sqft for the raw land). I am pitched by the developer that if we can get the approvals for 180k sft area warehouse on the plot (the land cost then would be approx 24$ per sqft of constructed area) , we can sell the approved plans for approx 40$ per sqft.  Is this a reasonable assumption? Will a builder pay 40$ for something that cost only 24$ but without approvals? How long does it take to get the whole project (of getting approved plans)?

Chris Seveney · Answer

@Prithvi Sri

1. Approved plans hold considerable value over law land. Why? Raw land the buyer is taking the risk that what they want to do may get rejected or reduced in size or the county may add additional requirements to project (like upgrade other infrastructure in the area).

With approved plans, it reduces the buyers risk.

Depending on project you can spend a few hundred thousand to over $1M on plans. You will need a land use attorney, civil engineer and architect at a minimum.

Depending on jurisdiction I would target 18 months - 2 years.

If it’s something you have not done before, I would sell it as raw land.

Ronald Rohde · Answer

No, I don't agree that everyone likes those deal. You already pointed out why, the lack of deal flow. Plenty of investors would prefer less upside, medium risk if it allowed them to deploy more money over a longer period of time. You just need to know what you want.

Prithvi Sri · Answer

Joel,

Who doesn't like high UPSIDE and lower risk deals? We all do. The question is, where do we find them? In buying a readmade property and being a landlord, there is little to no value generated so making a killing is just a fluke, even if one is able to do. To make money consistently, adding value is the only way. Other than buying land, what other avenues do you suggest?

Joel Owens · Answer

The REAL question becomes can you generate a similar return or close to it for LESS risk in the same or shorter amount of time.

I like high UPSIDE and lower RISK deals. I wait for those to invest.

Have learned that from investors 50 years in the business that own tens of millions of sq ft of commercial.

If you work on other stuff then likely high work for lower return or doing a playing with fire deal where most times you lose all the money.

Ronald Rohde · Answer

In CA, there is tremendous risk in getting land entitled and ready to build. So without speaking to your exact numbers, yes. you get a lot of value from approved plans. You'll be deep in the hole before you know whether you get approved or not. This is typically very high risk, high reward type of CRE investment.

Chris Seveney · Answer

@Prithvi Sri

That is not my specialty. I recommend speaking to a loc commercial broker and have them provide you that information. They will be the best source.

How much value add is from raw land to land with approved plans?

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