The Power of BP networking and a 7 figure profit !!!

[Jay Hinrichs]

2 years ago there was a post on BP from a member looking for funding 3 projects that would ultimately be sold to national builders.  Raw land entitled to approved lots. I responded liked what I heard and within 5 days I was on a plane to the east coast to meet this Investor who I met on BP. 

His need was funds for the entitlement process in the state he had tied this land up in.  Each of the projects would require 350k to 1 mil for a total of a little more than 2mil in cash needed to prosecute these projects from raw dirt to approved plats ready to sell. These were by right developments however the amount of consultants and specialty firms that was needed to get approvals and the cost associated was as stated was significant with NO collateral. My client tied up the dirt subject to approvals put up his non refundable option money .

I really liked  each of the projects one of them I would have loved to buy and build out.. So over the course of 18 months the entitlement process worked through the system.

The first project sold to Toll Brothers in Nov and we received our investment and our return for being the money partner. My client made about 1mil in cash and ended up with a 3500 sq ft home on 40 acres free and clear worth at least 2.5 to 3 mil. 

Yesterday,  Project number two 100 lots closed also to Toll Brothers. We put up just shy of 1mil in cash we got our return and my client made about 4 mil in cash.  

Project 3 250 plus lots scheduled to close this summer to Lennar corp.  Estimated cash profit for my client is about 8 mil in cash. 

Now reality. My client was/is a civil engineer who cut his teeth in NYC doing multi million dollar projects as a project manager. So had the chops to do this.. He new enough to know that entitlement monies up front there are NO lenders in the HML space that will do this there is no collateral. So its more of a JV and So one cant go looking for money expecting to pay HML standard rates.

My firm made  will make 7 figures in less than 24 months or a little more than double our money in that amount of time. 

Opportunity Meets capacity to execute and then meets Money that knows enough about the process to take on calculated Risk. Some of the biggest profits in RE is land in the path of progress.

Bottom line very profitable for my firm and we helped change my clients life well over 10 mil in cash in his pocket plus the house and acreage.  Just got to love America and Capitalism. 

[Don Konipol]

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Jay Hinrichs:

@Marcus Auerbach@James Hamling  still looking to do some of these deals in your markets :)

...... I mean, how can a guy respond to this other than "Hell YEAH!". 

What was the catalyst for the spreads on these deals jay? 
Because it's never as simple as buy land, just any ole land, do some paperwork and shazam it's a build ready development and ___ developer/builder will reward a person with a brinks truck. 

For example: 
The last one I did was an in-fill lot. Now when I say lot, it was just shy of 10 acres, and it abutted a urbanized city by 150'. 
The catalyst was others taking it at face value. 
Not in the city boundaries, it was in township. Had a corner area of "wetland" so all up to that point just assumed not buildable due to a portion with wetland delineation. 
My value-add was I knew there was an annex agreement between city and township and I could readily have it annexed to the city. 
Wetland, I was aware there is 2, not 1, wetland delineation; 1 being a full-stop, the other being capable of actions to be buildable. 
I got it tied up contingent, ran down the rabbit hole. 
The wetland was, the later. And directed mitigation plan was, NOTHING, zero needed to be done, no protected anything, was a big nothing burger. 
Annexation was all green lights. 
And from there the city jumped in and offered a paved path of approvals if we took it townhomes vs other units. 

The profits were in problem solving. Where others saw face value problems, I saw potential solutions and ran them down. 

I am guessing these have some similar back story? 

I have never sold to such a builder/developer before though so don't know what I don't know. 

my client understood what by right developing means.. and he searched acreages that had proper zoning and then structured the deals to pay for them when he got full entitlements ( this is extremely common in this part of the Real estate world.. these last two one sold for 18 mil and the Lennar one is about 21mil.. NO ONE is going to close those up front without entitlements certainly not the big builders in the US.. What keeps many from being able to pull these off is one.. Explaining to the seller they will not get paid until they have an approved project.. It will cost the seller nothing to get approvals. Then you need the NON refundable option money usually a few hundred grand. And then you need the 500k to 1.5 mil in cash to go through the process.. Most land owners who have owned land for decades don't have the experience or money prosecute the entitlement process.. And the big builders they want certainty and there is the opportunity for a middle man. But said middle man needs the experience and they need the Money..  I am very proud of this young man mid 30s worked hard as a civil in NYC and now has made life changing money. and as stated my firm we made signficant returns compared to vanilla HM Loans.. NO HML will touch these deals.. this is a hybrid.. I am good with them as I have developed about 1000 lots myself and built over 250 homes the last decade.  So its not foreign to me I understood what he got into contract and I could perform and perform FAST.. not sit behind a Key board.. I flew out there spent days walking the dirt checking out the County and zoing etc etc.  So thats how it worked. 

Many folks want to do this but dont realize how hard it is to get an investor to fund something like this.  Heck I get e mails all the time Hey jay we will pay you 10% to loan us millions LOL .. 

so, to be clear am I correct in the following:

Say $300k non refundable option money
Say $1,000,000 to get all approvals and entitlements.

No real property collateral backing the $1.3 million spent

If all entitlements received then property is sold to home builder for a price way in excess of the $1.3 million spent  (option exercised and property resold to home builder) 

Risk: if home building stops (recession, 9/11 or COVID type incident, etc.), or if entitlements can’t be obtained then the $1.3 million is lost.

So, you as lender your downside is much greater, but so is your upside.  Your ability to evaluate these deals  (experience, education, knowledge, judgement) is the KEY.  

In this particular example did your borrower have any of his own capital at risk?