How would you handle this development deal?

Question

Hi everyone. Long time reader here.

There is a busy road with 8 single family houses. The area, once out of the way, has grown into a hot new area of town.

The land where these homes sit, is now becoming prime retail/office space. All of the homeowners would need to sell to make it work.

Obviously there's the option of buying the properties up one at a time and playing a waiting game but not interested in that.

I am developing a plan but obviously need to lock down the homes before putting too much time and money into the project.

How would you approach this deal?

Thanks for your advice.

Tommy F. · Answer

@John Higgins With all due respect, you don't have a development deal, you have a speculation opportunity which to me is more about investor psychology.  The eight homeowners may very well visualize the same opportunity. Picking-off houses one by one with non-disclosure agreements will not prevent the sale of a home being recorded on the county real property website or property tax site.  As soon as one family moves, the "sell" signal is sent, especially when the moving family tells neighbors they can't discuss it.  The other seven homeowners will be snooping to find the selling price and buyer of their newly departed neighbor's house. Nothing is secret.  Also, assuming the eight houses are owner-occupied, you're dealing with the emotions of people selling a primary residence that will be destroyed in the path of progress. Do your research and find out who you're dealing with, owner-occupied or investors. Find out how long they've lived in or owned the homes, estimate their ages, consider their housing alternatives if they sell to you and have housing solutions ready for them. Money talks, so figure out a generous win-win deal for everyone.

Mike Salisbury · Answer

I've watched a few of these deals blow up.

Valuations become very emotional as people hear what the neighbors get offered and inflate their property with little basis. The last few owners you approach have the power as they realize without them you have no deal.

My approach: meet them individually and have a stringent NDA- neighborhood gossip kills these deals.

Best of Luck.

Sean Kremer · Answer

In my experiences with speculation like this and trying to make a deal like this come together without the interest eating you alive while you wait for the end game, which may or may not appear...is basically a hit or a miss, and a miss could take you under.

If you are planning to make a million dollars off of this deal, it looks to me the only safe way to do this is to start with 2 million...:)

John Higgins · Answer

The responses here validate my original thoughts. Without deep pockets, the only way to really approach this is to get the owners together to try and make it work as a group. Possibly secure an option on one of the houses to lock myself into the deal but otherwise not spending any money on it.

Jay Hinrichs · Answer

these deals can take forever and a day.

I own a 4 acre tract right across the street from the largest Indian casino in Northern CA  ( Graton Casino Rohnert Park)  have owned it since 1994.... there is 50 acres of prime development ground and 11 owners... when I went to a stakeholder meeting with the city.. it was evident that the majority were moms and pops that had NO CLUE about development and one would they think there land is good for this use.. ( which is not even remotely possible given the zone )  you have to fight these things... then one see a listing for dirt somewhere else maybe its a prime 1 acre corner commercial listed at 1 million.. they have 7 acres and jump right to the idea that their piece is worth 7 million...

its this type of mindset that is dog tough in these situations..

WE do have a large BAy Area developer  ( I think Joe Montana's company) sniffing around right now as 3 of us actually have foresale signs and MLS listed at reasonable prices ( right at that 1 mil and acre mark).... but of course we will negotiate to get the deal done.... all these folks like myself basically have a zero basis.. so no need to hold out lest you die before you get the nice payday.

Devon Garbus · Answer

Knock on the door, make an offer. Make D.D. as long as you need it to be.

Repeat until you have as many as you need to make it work

John Higgins · Answer

Thanks for your reply Mike.

I guess there's really only two ways of approaching the deal. Quietly buy up the houses individually and hope they all eventually sell or approach them as a group. B

Buying them individually is too risky without knowing if all of them will sell.

How would you handle this development deal?

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