How to Wholesale Land from a Desperate Developer?

Question

I am an experienced wholesaler but I have not wholesaled land before.
Someone approached me with a land development gone "bust". The developer did not finish the project and ran out funding (he prioritized other development projects).

The land is in a good area of Chicago and I believe there is potential.
However, I don't want to jump into the deal without knowledge so here I am asking you, my fellow BPers for your help.

1) How do you evaluate a development deal, i.e., what's the project worth and what's a good price for a developer-buyer to take over the development or buy the land from me?
2) I plan to put an option to purchase on the land at one price and sell the option at a higher price. I will put minimal option consideration to control the deal. Is this the best way to control the deal?

Thanks in advance!

Account Closed · Answer

I work with a couple of agents that represent only investors.  Some of their investors really want to build and they have asked my help to get them land in various developments that have gone bust.  Some are 200+ lots, some are quite small.  Some have infrastructure, some are still pretty raw.  None of them can be sold without some serious deal making with the lenders and lien holders.  All of them are hugely over encumbered with debt and law suits.  Not to mention muni compliance liens and mechanic's liens.  One of them has a lender, who is owed $12M, going the judicial foreclosure route in order to get a judgment and try to collect the builder's other assets.  The builder has spent the last year transferring everything between various LLCs and filing both corporate and personal BKs.  The lender will not come out ahead.

Most developers where I am already know every creative strategy in the book.  They know entity structuring and pay legal and accounting teams to keep them safe.  They aren't usually hurting for cash.  They are playing a game.  They know full well how to arrange for a string of straw buyers and short sale to themselves.  They know how to rig and/or control the auction environment.  I love title and lien puzzles but I'm staying away from that crowd.

Wayne Brooks · Answer

With a failed development, there is probably a laundry list of liens, mortgages, etc.  make sure you know what all these are.  And a developer isn't going to be as ignorant as the typical homeowner when it comes to RE dealings, tying the property up with options, etc.

Wendell De Guzman · Answer

Karen Margrave, thank you for pointing this out: "status of the project with the City Building and Planning Depts., State agencies, etc." - this is definitely going to be part of my due diligence.

Karen Margrave · Answer

Wendell De Guzman Unless you are experienced in these types of transactions, you should beware! It could be a sweet deal, but more than likely a huge can of worms. How far along is the deal? What improvements have been put in? What still needs to be done? What is the status of the project with the City Building and Planning Depts., State agencies, etc. do they have any fees, etc. that are owed? Are there liens from subs, suppliers, designers, engineers, etc.? Is there a HOA? Is one required? Costs? No developer is going to jump into buying a partially completed subdivision without knowing exactly what needs to be done to bring it up to where they can build. The price would have to reflect the project where it is in relation to completion, and there would need to be a demand strong enough to justify the prices that homes would need to sell for in order to do all the work still needed.

If the subdivision is in an area with high demand and good prices, you probably aren't going to get the subdivision to wholesale, because developers know every piece of dirt in their area, and who walked away from projects, and whether or not it's worth buying, if so... they're already talking to the original developer.

I see by your website that you work foreclosures, therefore; you should know the entire process intimately, and understand what it's going to take to have clear title, etc. so you're in a much better position to answer your question than we are!

Wendell De Guzman · Answer

Thank you Wayne Brooks - I will keep that in mind and ensure I am aware of all the liens on the property.

Thank you also K. Marie Poe for your advice on what to watch out for. My knowledge and experience about foreclosures and the different stages in court will come in handy.

How to Wholesale Land from a Desperate Developer?

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