How do developers consolidate multiple lots

Question

I'm looking at a house in a neighborhood with increasing multi-tenant development. It's a block that's perfect for knocking down all the houses and putting up an apartment or condo development. So my question is, how do developers consolidate all of these small lots before development? Do they make a blanket offer to all the homeowners or negotiate individually? How much of a premium do they usually pay for the land? Obviously the price has to be higher than land + structure in order to motivate sellers.
Thanks

Derek Carroll · Answer

@dan

- im having trouble tagging you so hope you're monitoring this topic......

anyway, as im sure you're aware every situation is different and everything is negotiable.  A developer could have a project in mind for years before actually breaking ground.  During this time they could slowly be assembling the land.  Normally each parcel is purchased separately, and you're negotiating with each seller with different purchase offers.

Many times a developer will use a broker to help submit anonymous purchase offers.  They do this to hide the fact that the same person is trying to assemble a parcel which can often lead a few sellers to hold out and ask a very high price if they find out and realize that they have leverage.

the price doesn't always have to be higher than market values, especially if people are selling for what they think is an individual transaction.  Sometimes people just want to sell, move, cash out and will sell once they receive a reasonable offer.  You're correct, however, that , most of the time there will need to be some incentive provided.  As long as you've priced in the land appropriately to your deal then you'll know how much of a premium you can afford to pay for each parcel.

Sometimes it can take years to assemble all the parcels needed or desired.  If you're changing zoning or will be requiring variances then that's another major concern when assembling parcels.  You don't want to buy all of the land just to realize that you wont be allowed to build what you thought.

You might be able to get the parcels locked up with purchase options.  This would give you time to make sure you can get all the parcels under contract and also work toward approvals without spending a whole lot of money only to get denied or have the last seller hold out for an unreasonable asking price.

it's a fun process and can be a huge value add making you a lot of money, but needs to be carefully approached.

J Scott · Answer

You'd like give yourself a big headstart and advantage if you work to get the property rezoned prior to reselling, and/or if you verify that you'd be able to get it rezoned prior to purchase.

If you buy the lots and then find that they can't be rezoned, you're stuck with lots that may not be worth more than you paid for them...

Dan Nad · Answer

Interesting, thanks. I'm not a consolidator, but I would like to buy & hold an option on a developer buying up the whole block. The location is so perfect (and condos are going up all around) that I have to believe it's just a matter of time in the next 3-10 years. It's in a prime location &  with a big front and back yard so the structure is already a tiny fraction of the total value. Plus it's on a major road so not at all ideal for SFH.