What does partnering with a developer look like?

Question

Hi everyone-

Like a lot of people here, I am looking to get into the development side of Real Estate. I've read a lot on the subject, and the constant advice is to partner with a developer on your first deal to see how it all works.

I'm curious to know what this looks like. I know they can be structured anyway you can negotiate it, but I'd like to hear what the most common and practical ways of partnering would be. What would be enough skin in the game to make all parties comfortable in working with a newer player?

Scott Choppin · Answer

Hi @Dave G.

A few examples:

1. You find the land, correctly zoned or capable of being zoned for a viable project, ask for 25% of sponsor (developer) back end profits. No cash from you.

2. Same as above, but put up 50% of the equity on the sponsor co-invest, ask for 50% of sponsor's back end.

3. Find the land, put up the entire co-invest, find the LP equity, then ask someone to put up financials for the construction loan guarantees and give them 25% of the back end.

I list finding land as a mainstay of your offer, as most developers need one of two things: deals and capital. And in many cases, land timing and deal flow is harder to control, meaning you can't set up land deals in advance, whereas equity or the co-invest you can. So land deals are more variable in their timing, and therefore more valuable to developers who already have the equity lined up.

4. Find land, tie it up, process entitlements, sell to another builder.

5. Find land, process entitlements, joint venture with another builder, with the "value add" on the land, the value you generated above the land purchase prices as your equity for the co-invest.

6. Same as #5, but the value you generate suffices for all the equity in the deal, then combine with #3 for the CL.

I am an offer of help, feel free to reach out if needed.

Thanks.

Scott

Ken Buck · Answer

Great post, At some point soon we'll be adding 100 doors within a month's time frame to subdivisions. Spent 3 years now developing the modulars that are as nice in design and finish out as a sitebuilt custom...and half the cost.

Let me know when you have a deal and we could possibly have some excellent synergy.