All Forum Posts by: Barry Ruby

To be exact, land = 33% of total project

The structure I've used as a developer for the past 50 years is to:

1. Establish and reach an agreement with the developer for the value of your land.

2.  Establish the total cost of the project which includes the value of your land.

3.  Establish the debt (loan amount) that can be generated by the project. 

4.  Following the above steps will determine the amount of Total Equity that is required to execute the project (Total Project Cost - Project Loan).

5.  Assuming that the developer will, in addition to developing the Project will also be the same entity that will be putting up the total equity, the value of your land will be equal to the land value divided by Total Equity.

For Example:

Total Project Cost       $10,000,000

Less Project Loan      -$  7,000,000

Total Project Equity    $ 3,000,000

Total Land Value         $ 1,000,000

% Land earns in Project = 30% ($1,000,000/$3,000,000)

It is important to understand that the landowner will need to contribute its land to the partnership and subordinate its entire $1,000,000 value to the construction and permanent loans that are created to build, own and operate the Project. 

Hope this helps

Depending on state law, you may be able to fire the contractor you hired and consider making a deal with the workers he's stiffed. I had a similar situation (oddly with a dry waller). I called a sheriff who performed a service called a "citizen's stand down" because the dry wall guy threatened to take a sledge hammer to the walls he partially installed. The sheriff came on-site to ensure that neither I or the project got hammered.

Depending on how much more work more work needs to be done and how much more that work would cost, you may be able to hire the workers directly and make them whole and in the process avoid them filing liens on your property. 

I was able to do that with the workers the original sub hired and stiffed. We got a great job, came out whole financially and managed to keep the job site a friendly place to be. 

Good luck!

By the way, I've done a good deal of land development projects beginning in the mid-1960's and have gained a certain amount of 'hands on" experience in the process.

Hi Teren, 

The best and only way to analyze a raw land deal is to find a property that you feel has development potential. While the vetting and development process may be the same or similar for any property, each land deal has its own specific set of issues and criteria to deal with.

Once you identify a property, you need to determine what you feel its "highest and best use" is; retail (what type), office, residential (what type) and so on. After determining what you think the most appropriate use is, you should contact the entity that will you will need to secure the approvals required to permit, build and operate the project.

If the property is in a county, you need to find out if it can be developed in the county or if it needs to be annexed and zoned into a city or town so that you understand the rules of the game that needs to be played to obtain all the permits required to make the deal happen.

Items such as zoning, land uses, density, required and availability of utilities, on and off site improvements all need to be understood before you can run a pro forma to determine the project's financial feasibility. You also need to confirm the market value of the product you intend to build and integrate cost and income factors to confirm that the deal works.

Once and if you get to a comfort level that you have a deal that works, in addition to doing a pro forma, you need to tie the property up before you spend any significant time or money going anything further than the process noted above. 

One of the most important deal points in negotiating the purchase contract is to make sure that the terms and conditions of the purchase contract provide you enough time to get to a fully approved project that permits the uses you have in mind. To ensure that you do have enough time, you need to run a critical path and pre-construction budget to figure out the steps, milestones and costs associated with securing a fully permitted project.

Once and if you get to that point, your land contract should take all of the above into consideration and dictate the amount of money the land seller will want in the way of earnest money while you go through the zoning and permitting "dance".

This gets tricky because you and the seller will have the exact opposite goals. He/she will want you to close as quickly as possible, pay as much earnest money as soon as possible and pay as much for the land as possible. You will, of course be looking for the reverse in all respects. 

The best way to determine the terms and conditions that work for you in regard to the land contract and the project you are looking to do is to arm yourself with facts and figures as they relate to the key deal points noted above.

Hope this helps a bit.

Best,

Barry

Understood and agreed. I have created and am using a robust user friendly pro forma workbook to vet and analyze any size multifamily property. It provides the ability to use data from broker offering memorandums by comparing actual to pro forma income and expenses. My pro forma provides financial performance for a range of financial metrics such as cash on cash, IRR, equity multiples and discounted cashflow. These metrics are reflected on a project level as well as performance for to the project sponsor and investors on a pre and post tax basis.

Let me know if you have interest or need for such a tool.

Best Regards and good luck in your real estate activities.

Jeffery, I have done a good deal of analysis on a wide range of property types. Feel free to contact me and I'd be happy to see if I can assist you.