All Forum Posts by: Chris Newman

Hi Andy,

I'm near Seattle, WA but I invest in local farmland, although it's for the transferable development rights that I can clip off and resell at a profit. It's a local-only thing. Indiana doesn't seem to have one of these TDR programs, except for forest lands. 

The people you need to talk to in order to split your farm property will be your local government Planning and Development Services, or some similar name. Same folks who approve building permits etc. or they can tell you who to see. Bring in the tax account number(s), as well as the physical address.

Before then, you might also check the long legal description for the land that was listed on your closing papers. If it says "Lot X" of Block...." then it's a single lot. If it says "Lots X, Y and Z etc. of..." then it's already split and may be able to be owned separately already. Or maybe not. Every jurisdiction has its own rules.

The first thing you'll need to learn is what the permitted lot size is for farmland. Here in Snohomish county, it's normally a minimum of 10 acres. But your land use codes may be different. 

As for the cost to split the land, you'll have to ask. It may be cheap or it may make your eyes bug out. :-)

Surveys aren't cheap and I don't get them unless it's required. Generally, existing fence lines, if they exist, come pretty close. At some point in the past, somebody knew where the lot lines are and neighbors are picky about encroachment. When you're talking acreage, a few feet either way don't usually matter much.

Have you looked into aromatic growing hops for craft beer? Indiana is in about the right Latitude (48) and there are folks growing them there now: https://www.google.com/webhp?sourceid=chrome-insta... That's the highest value legal crop that I know of for your area. For aromatic craft hops, you could be looking at $40,000/acre/year. It costs some to build the 18' trellises and plant up to 1,000 plants per acre, but both will last about 20 years before refurbishing. 

I recently posted a good manual on growing organic hops at http://www.biggerpockets.com/files/user/ChrisNewma...

If the location of your land is right, don't overlook the agritourism potential value. People love to visit farm breweries.

Just thought I'd pass this on. Not many farm flippers here on BP. 

Good Luck!

best regards,

Chris

Thanks for your thoughts, whoever you really are, "Bryan R." At least, I use my real name and photo here. Why are you hiding your identity, even on your website? What don't you want people to find out about you?

Actually, this is the third "convoluted" offering that I've made on the BP Marketplace and I've met some good people through the other two. I've even received votes for those posts.

Have you actually read and comprehended my offers, so that you can offer truly informed advice that's based on your extensive direct experience? I always welcome qualified advice and good questions.

Or, did you just give this a quick scan, and decide that since you don't understand it, there obviously must be something wrong with it? And me, personally? 

Can you describe a TDR credit and why it is such a great new real estate investment instrument? In an earlier offering, I provided all the information that's necessary to cultivate an informed opinion about them. Did you even read the whole thing?

Or, can you explain how climate change has so strongly impacted the craft beer industry across the nation, and created a great new opportunity for Snohomish county farmers? I detailed this above in just a few paragraphs.

Normally, I'd just ignore you, but I strongly object to your publicly using the word "convoluted" about my offerings and the negative connotation that comes along with that word, poisoning my credibility with potential working partners, before they go to the effort to learn and understand the facts. And, doing so mere hours after the posting, after I just spent a week and more than 50 hours writing up a polished and highly-detailed marketing package, really tees me off. That's a personal attack, on several fronts, so I can't just let it pass. You can waste your own time and money, if you please, but you may not waste mine. Any fool can burn down a forest with a thoughtless match.

There's a whole big world of real estate investing out there that doesn't involve bottom-feeding for various versions of profiting from other people's misfortunes. It takes a special kind of person to actively seek out "non-performing notes," as you do. I consider it bad Karma.

I work the other end of the REI spectrum, out on the cutting edge where the innovators play, seeking new kinds of ground floor opportunities before they become common knowledge and the profits get sucked out of them.

I'm drowning is high-profit REI opportunities, literally millions of dollars to be earned, that most investors have never heard of. But, I need more capital to pick them up, so I decided to sell this large piece of well-located land.

I flipped my first SFR 37 years ago, probably before you were born. I've been supporting my family through buying and selling a wide range of things ever since and have closed literally thousands of sales.

The soft-sell marketing strategy that has worked best for me over the years, and for my many satisfied buyers, is to give people all of the facts that they need to make an *informed* decision. Especially, when it may involve something that isn't common knowledge and that requires a depth of research that they haven't yet done, but I have. I consider this to be a valuable service to my buyers.

More than a few people actually thank me for the depth of detail that I share. Others are like the emperor in the movie, "Amadeus," who accused Mozart of using "too many notes."

In this particular case, my offering is very, very simple: 

I own a most-unique 14 acre piece of land in a terrific location that I want to sell that is absolutely perfect for use as an estate brewery and craft hops farm. Within the context of the local market, both real estate and consumer business trends, this is its highest use and it's a really good value. But, it's not for everybody, or even hardly anybody.

Maybe 100 people in the entire country, and just a handful in the Pacific Northwest, will already understand this opportunity and find it of real interest. I'll be contacting the top local prospects directly. But, I can't imagine that a likely buyer, who is going to be a larger busy commercial brewer, is going to be looking in the local MLS for the first estate brewery site in the region.

Or, do you know something that I don't? Why is it that the quantity of marketing efforts is superior to the quality?

But, everyone understands an $85,000 selling commission, and the odds are that at least some BP'ers enjoy spending time at their local brewpub, chatting with the owner, who is my target buyer. If they can pick up a quick 85 Large for simply passing along this information to someone who will see the value, why wouldn't they be interested in learning about the opportunity in order to make a happy buck? I wanted to give this offering some national exposure and BP is one of my best options. There is no MLS for farm breweries.

Everything else in my offers is factual, verifiable, and educational information to help prospective buyers understand it, so that they can understand the value of what's being offered and thereby make an informed choice. Presenting the full context for such an esoteric niche as the craft brewing industry requires a lot of words. That makes it "complicated," not "convoluted." Investments that involve many zeros in the price are never simple.

But, I submit that this is still far less complicated to analyse than the 100 unit multifamily properties that your profile page says that you're seeking. Can you calculate the IRR on a multifamily offering? Ben Leybovich has written long articles on this topic that make my offerings look like finger painting. Do you put him down?

The MLS is for *normal* real estate offerings, usually for residential properties, that normal people are seeking, not esoteric new specialty niches with just a few potential buyers. I actually thought about it and concluded that listing my property there would simply bury it, never to be seen again. Most people on the MLS have far less savvy than average BP'er's and their eyes would just glaze over because they can't keep up with the concepts. I'm going for marketing quality, not quantity.

And, more critically, by listing I would lose complete control to market this property myself. If I did end up selling it on my own, I'd still have to pay a whopping listing commission that nobody earned. Life is just too short to passively wait for other people to do my job for me, especially when they probably don't care if I live or die - they've got their own worries. 

I'll give you a chance to redeem yourself, however. I'm always open to understanding something new:

Am I missing something about the MLS? Can you please explain to me in rational detail, with numbers and case examples, why "exposure on the MLS" is my best bet for selling an estate brewery site? And, what exactly qualifies you to have an opinion about it?

To the other readers, I don't like to rant, but it pisses me off when ill-informed people rain on my parade out of ignorance and thereby hurt my attempts to feed my family. If someone has something negative that they just have to say, common courtesy would have been to PM me, not just regurgitate their confusion in public and handing out bad advice. 

First, some short background to set the context on why this sale commercial property is important in a huge new consumer trend, and why it's well-worth the selling price:

If you haven't noticed, craft beer brewing is exploding all over the world, and especially in the US with the Millennial generation. Washington state, with nearly 300 craft breweries, is #2 in the nation, just behind the huge California market, and growing far faster. This new product niche has become a $multi-billion industry and is projected to grow at 20% rates for at least the next five years. It's a lot bigger than legal pot.

But, craft beer is not just about the alcohol and artistic flavor profiles, although those play key roles in brand marketing. What's primarily driving this trend for craft beer is the "lupulin" in aromatic-style flavoring hops, with its soporific effects. Hops are a kissing cousin of marijuana, which is fully legal here. 

As with any other mood-altering substance, a user tolerance builds up and it takes more and more lupulin to get the same high. This phenomenon is well-recognized: 

Due to rapid local climate change, as is happening in California to the south, and the severe drought that it's causing all across our state, the hops industry in eastern Washington's Yakima Valley, producer of more than 75% of the US supply of hops and the #10 ag product in Washington, is collapsing. Irrigation-dependent hop harvests there are down, hopyards are being kept fallow to save the plants and thousands of acres of farmland with senior water rights is being bought up by California investors who are tearing down the hopyards from production. 

As a result, crop prices have doubled to as much as $40,000 per acre on the spot market (which is phenomenal for farm land) and the outlook is that this market price trend will also only continue for the foreseeable future.  "The Evergreen State" may have to change its motto.

Since hops are the most-costly ingredient in the most popular craft beers, this combination of increasing hops shortages from traditional suppliers in the face of fast-rising demand is putting craft brewers all over the country into a tight economic bind: If they don't heavily hop their beer, their sales will go way down. One local micro-brewer estimates a volume drop of 43%, without heavy-hopping.

So, for many reasons, including gaining exclusive access to the scores of rare "boutique" hops varieties that don't make it into commercial production, producing the critical hops in-house makes a lot of good sense for many brewers. If the location of the farm is also excellent,  selling beer at retail in an on-farm a tasting room or brewpub, also makes very good sense. Nothing is more profitable than complete vertical integration.

A Yakima Valley hops farmer and his thirsty plants, in happier days, before the 2015 drought.

But, every storm cloud has a silver lining because, with change comes new opportunities: As a result, Snohomish county, just north of Seattle and with a large stock of great farmland that doesn't need irrigation, is well-poised to pick up a lot of the Yakima Valley's hops production slack. Most of this farmland is much further off the beaten path, though.

There is no simply better place to grow hops with a visitor component than here, on 4,000 acre dike-protected Ebey Island, in the middle of the Snohomish river, one easy minute from I-5 at downtown Everett. Civilization leap-frogged over Ebey 100 years ago and I've never seen another such close-in slice of periurban rural paradise, with such a high agritourism potential, than here. That's why I bought the property in the first place, back in 2010.

This quiet green community is destined to become "The Napa Valley of Western Washington," with many new "liquid arts" tourist-oriented farm estates. (Wine, hard cider and distilled beverages are hot, too.)

This particular high-profile sale farm, stretching for 1/4 mile along a busy freeway, is the key anchor beer-tourism site for the whole of Ebey Island and, all things considered, no other location comes even close. This is ground zero and any beer tourists who visit Ebey, or travel I-5, will stop here, too.

An easy 30 minute drive from Seattle. 

Dike-protected Ebey Island, in the middle of the Snohomish river, is just one easy minute from downtown Everett, with freeway ramps to and from both directions. Every day, 70,000 vehicles cross this gateway chokepoint. In the middle, seen from a unique vantage point 40' up, on the trestle, is the 1/4 mile long green canvas that's currently named "Starbird Farm."

A very small representation of the Washington craft brewery tourism concentrations. Beer tourism is hot! For this property, X marks the spot! 

This one-of-a-kind 14.3 acres of prime quality non-irrigation farmland and its historic landmark barn, with 30 million vehicles passing by right next door every year, is just 30 minutes north of the exploding Seattle real estate market. Located in the epicenter of the concentrated craft brewery corridor along I-5, this land is absolutely perfect for growing high-value aromatic hops, a BrewPub/Beer Garden and regional agritourism in an open-space country estate setting. 

As far as I can tell, this will be the first "farm brewery" in the Pacific Northwest, possibly on the entire West Coast. These businesses are proving very popular on the east coast of the US and all over the world. People love to visit farms and to drink local craft beer that has been created "from the ground up." Certainly, there will never be another one of these "beer farms" that is remotely closer to Seattle: The land has all been developed.

Basically, this is a perfect place for a "Beer Theme Park." There are several of these in Europe and they're popular, but none at all in the US. How about an off-leash beer garden? There's room here.

Priced at a bottom line of $853,000, which is the raw land's breakup value (into its current 50 legal lots), without premium for the many other valuable features of the site. The "billboard" value of the public exposure alone (a sign on the landmark barn so close to the freeway) is an easy $300,000 per year.

This price works out to a land cost of about six cents on the dollar, compared to other commercial land just minutes away, where average market prices for undeveloped land are $1 million/acre. This same amount of land just minutes away would cost $14+ million and it wouldn't grow hops. The only real practical difference between the two commercial zones is that the wide variety of business activities that are already permitted here must be "agriculturally oriented."

I'm more than happy to pay a 10% selling commission to whoever can help me move this property for me. Courtesy to agents and brokers. I'm not willing to list this property and tie it up, but if you bring in a prospective buyer, I'm not going to poach them. My main concern is to get this property sold so that I can aggressively start buying more local farm land for my main REI niche of "clipping and flipping" local transferable development rights.

I'm going to be actively marketing this property myself in the NW, although I don't object to local sales "competition." But there are also at least 3,000 other craft brewers across the US who I won't be contacting and at least 100's of them would both love to jump into the hot Washington market and can afford this property. 

So, if you know the owners of an out-of-state brewpub, or one or more ambitious investors/entrepreneurs who want to jump into the craft brewing business with both feet, they'd probably love to hear about this opportunity. 

There's even a natural new brand name included: "Isaac Ebey" Besides Ebey Island, the unique name Ebey also appears on a road, a mountain, a slough and a large nature preserve. He lived a short, but fascinating life.

Isaac Neff Ebey, 1818 - 1857, one of Washington territory's first pioneers and entrepreneurs. Killed by indians. 

I've just posted a really extensive property marketing document at my BP FilePlace page at http://www.biggerpockets.com/files/user/ChrisNewma... You won't find a better crash course on the subject of growing craft beer hops in the face of climate change and selling beer in an agritourism setting. You'll also find a lot of informative links within the document to source documents, other beer farms and parks and news articles from which I gleaned the above information. 

If you don't know anything about growing hops, I've also posted on my BP FilePlace a great manual on setting up a smaller organic commercial hopyard. (It's not rocket science.) You'll find it here: http://www.biggerpockets.com/files/user/ChrisNewma...

If I was 10 years younger and not seeking a less-strenuous lifestyle, as well as focusing on increasing my farmland investment business, I'd be looking for a partner, not a buyer. However, I have decades of horticultural experience and years of research into what can be done on this property and I am available to stay on as a consultant. I also like a nice double-hopped IPA when the moon is full. :-)

If you have general interest questions, please post them below. For specifics, please PM me. 

Thanks!

Chris

@Roy N.

Actually, @Jay Hinrichs is 208 miles south of Everett, WA. Sort of backyard-ish, I guess. I'd sure love to talk about this deal with him, though, and get a highly-qualified opinion.

Chris

If this isn’t the record Bigger Pockets offer of a bird dog fee for a wholesale-priced property deal, I’d love to hear about it. But, it’s legitimate.

In short, in my home Snohomish county just north of Seattle, and in one 3.5 square mile Urban Growth Area, starting probably August 12, it will be possible to massively and quickly upgrade the number of condos that can be built on a properly zoned site, to nearly three times the current permitting.

But, to get this upgrading, you’ll have to “buy” it with something called a Certified “Transfer of Development Rights” credit.

These TDR “upgrade credits” are purchased from the local owners of (mostly) farmland who have unused residential building rights credits. Through the new county TDR “resource land conservation incentive” program, these credits are split off and then transferred to this initial UGA, where they are submitted along with the building permit applications for an instant and guaranteed density bonus upgrade to 260%.

Acquiring these credits will not be simple: There is no central bank or clearing house for them. Each acquisition must be a private transaction with resource land owners, and the majority of them won’t qualify to have anything to sell. And, many of the qualified sellers won’t know that they even have something new to sell. Beyond that, their land also needs to be debt-free before they can get certified. Not simple, not easy.

These TDR upgrade credits are my real estate investment stock-in-trade. I’ve been developing my knowledge of them and how to play them as investments for more than 5 years, so I know how to get a lot of them at rock bottom costs, sometimes less than zero. I currently have 304 of credits in inventory and a strong bead on up to 1,000 more at essentially a zero net cost.

By any viewpoint, this is a tiny esoteric real estate investment deal that only applies exactly like this program within one county in the entire US. But, by my estimates, there is somewhere between $25 million and $50 million in low-hanging fruit to be harvested, several small fortunes to share, and that’s certainly worth the chase.

But owning these credits doesn’t do me any good unless I get them sold. For that to happen, someone needs to invest in some prime commercial land and then acquire the TDR upgrade credits that it takes to achieve the high density permitting. In this case, the upgrade is from 159 condos to 419 within the same footprint.

Essentially, what I’m trying to do here is to proactively create a customer for my credits, rather than passively waiting for one to show up.

I’ve also structured my part of this deal so that not only will the permitting be bumped up hugely, the net cost of the land for each condo will actually drop by 33%, which is going to save the developer almost enough money to offset the original cost of the land. 33% a pretty sizable discount, on the order of a $6.3 million developer savings.

But, I don’t personally know any wealthy investors in this league, either developers or buy-and-hold commercial land investors for this smoking Seattle-adjacent market. So, I’m opening this up to the BP community with a $1 million bounty for the deal-maker who can put this deal package together.

And, yes, even in 2015 $1 million is a big chunk of money. But, I’ll still be pocketing another $4 million, so I’m not complaining. What this first sale does for me is open the door to even bigger profits by repeating the same formula many more times.

Anyone can play here, subject to your local laws, and there is absolutely no cost to enter the free market competition. Basically, this scenario is such that the player is putting together a deal for a buyer/investor and earning a bird dog fee from me for success.

The “winner” of this bounty/fee will the first person to somehow arrange successful purchase agreements for both this subject land and my TDR upgrade credits, with a closing within one month. If this timing is not met, or for any other reason, I reserve the right to accept a backup offer that meets these requirements.

The reward for success will be paid out in one lump sum at the end of the land and credit package purchase process, which will be concluded via a bonded escrow process (either together or individually). Ideally, the escrow agent will be Chicago Title Insurance, which has offices all over the US. CTI will be writing a couple of checks during closing and one of them will be for $1 million, payable to the first person to put this package together at these prices.

There are also "runner-up prizes," too. This subject property is not the only qualified TDR Receiving area property in this 3.5 square mile UGA, with seven miles of commercial land frontage, much of it undeveloped to full value. There are numerous smaller commercial parcels here that are listed in the MLS, as well as many that aren't even for sale yet, that also qualify for this county TDR density upgrade program. At my 50%-off TDR credit selling price of $22,000, I'll happily pay the same $3,846 bird dog fee per credit for these, too. More info on this will be found at the end of this post.

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To Begin:

There is listed for sale a prime 7.23 acre mixed-use/multi-family zoned development site, just south of Everett, WA. The asking price is $7.7 million, which is right in the ballpark for this location/market, but just a few pennies on the dollar compared to nearby Seattle’s prices.

There are some major positive zoning changes coming to this neighborhood in the very near term, probably in early August 2015. The exact timing of the final passage isn’t certain, but this zoning upgrade is the conclusion of 30 years of local planning that’s extending out for the next 25 years and the changes are certain.

The Heart of a New TOC Neighborhood.

This is not junk development land by any means: Located on major bus routes (every 12 minutes) close to the regional transportation hub, close to all services and very close to the main Boeing plant, as well as central to a rapidly-growing aerospace supply industry with high-paying jobs, this site is in the heart of what is going to become a huge new “Transit-oriented and walkable community.” This new high-density TOC will be starting first along this unincorporated 3.5 mile stretch of Highway 99, then eventually expanding both north and south into Everett and Lynnwood.

This site, abutting the southern Everett city limits, is where most of our rapid population growth is being steered by planners - away from rural and into existing cities - for the next 25 years. In addition to our own explosive growth from local industrial growth, this is also the spillover area less than 30 minutes away from the exploding Seattle/Bellevue markets. Greater Seattle has been labeled by large national developers as “the new San Francisco.” Market prices just south of Snohomish county are double or more, with no sign of slowing down. Home sales inventories in Seattle are now less than one month in size and most listing sell for higher than the asking price.

As a result, many thousands of longtime Seattle residents are being frozen out by the steep rental price increases. So, folks are moving south toward Tacoma and north into Snohomish county. If this rocket-to-the-moon real estate market trajectory was happening in Hoquiam, certain folks there would be even happier campers.

You can see the property listing, with plenty of photos, here: https://www.redfin.com/WA/Everett/12800-Highway-99-98204/home/2658639

(If you’re into market price comparisons for selling points, however imperfect, a small 1.2 acre condo development site in downtown Bellevue just sold for $24.9 million. At that rate, this 7.23 acre Snohomish county site would be selling for just over $150 million, instead of $7.7mm. Of course, these are very different neighborhoods. But, a price ratio of more than 19:1 for condo sites less than 30 minutes apart, and with only about a 15 minute difference in commute times to Seattle, seems high. http://www.bizjournals.com/seattle/morning_call/2015/07/condo-developer-nat-bosas-next-target-downtown.html If you want to get even crazier, development land in downtown Seattle, 30 minutes south, sells for $600 to $1,000 per square foot, while this subject property is under $25 per foot.)

This site is currently zoned (at a baseline of 22 units/acre) for building 159 condos in 45’ tall buildings, plus some ground floor commercial.

All else being equal, the main determinant of the market value for multi-family land is the cost per condo building “pad.” i.e. it takes 2,000’ of land to qualify for one dwelling unit permit.

At the asking price, this per-unit cost is about $45,000, which is also in the ballpark for the local market. New condos around here sell for around $250 to $350k, depending on the degree of luxury, which won’t even buy you a studio condo in Seattle.

But, with the completion of this package, however, this per-unit cost will be dropping by 33%, down to about $30,000 each, while the finished condos will still sell for the same price. That’s a huge selling point. Here’s how this will happen.

Changes Coming:

However, this base density zoning (of 2,00’ of land per unit) is about to change with a major upgrade, with a reduction in the requirement per unit down to 750’/unit.

In the very near future - I’m expecting August 12 - this UGA neighborhood will be granted a density upgrade to 260% of the current baseline. That new zoning means 58 units to the acre (instead of 22) with 75’ buildings in the same footprint.

The more units that you can build on a site, the more profitable will be the project, of course. The new permitting for this site will be for 419 units, which beats the heck out of 159.

For the specific details on this upzoning, please see the official documents on Snohomish County Council resolution 15-016. As this is being written, you’ll find it near the bottom of the county’s web page at http://snohomishcountywa.gov/2134/Council-Hearings-Calendar (None of the proposed minor amendments mentioned here will impact this deal.)

I really do expect this zoning change to finally pass August 12 - it’s been a long time coming, the lobbyists battles are over and this is the final piece of the TDR program, which has been in planning for 30 years and officially came online about 18 months ago.

*****************************************************

But, I have no direct interest in this property!

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However, its sale is the key to my offering a $1 million cash finder’s fee to whoever can put together its acquisition. My goal is to create the buyer demand for what I have for sale, that will result in a deeply-discounted total project price.

I know that this probably doesn’t make complete sense, but all will become clear in a moment. :-)

“And Now, for Something Completely Different...”

While the zoning upgrade is a near-term certainty, there’s a special new requirement that applies only in Snohomish county, that almost nobody has ever heard of, and that is unavoidable in order to receive the 36 bonus density upgrades:

THE DENSITY UPGRADES DON’T COME FOR FREE!.

(In the 15-016 resolution document, look for the word “mandate.”)

Here’s how this new set of rules works. It’s probably different from anything in your experience, but it’s not that complicated, just new:

A. The first 22 units per acre of permitted development are included with the ownership of the land, like usual. That’s one of the rights that comes with ownership and they are granted automatically when building permits applications are submitted at this level. When you divide 22 permitted units by the typical $1 million/acre local market value, that works out to a local market cost per permit of about $45,000 each. All else being equal, this is the figure by which the value of the property is calculated.

B. But, in order to be granted the permits to build the additional 36 units/acre that the rezone is creating, you’ve got to have a special “magic sticker” that’s submitted along with the building permit applications. No magic stickers, no high-density upgrades, and no “normal” zoning variances, either - it’s that simple.

C. Whoever ends up owning this land, and wants to build it out (or resell it) for full profits, will have no choice but to somehow obtain these key “stickers.” But, if you possess them, the upgraded permitting density will be both instant and guaranteed. This is all verifiable with county PDS.

This is where I come in, as a major supplier of these Snohomish county stickers, aka "TDR credits." "Clipping and flipping" these credits is my REI specialty niche. I've been building to this point for more than 5 years, when I bought my first 14 acre farm, with many more resource land purchases planned and just awaiting capitalization.

However, especially in these large quantities, finding TDR credits at any price is going to pose a huge challenge for most developers or investors. There is no central source or broker or “bank” for them. They’ll need to be procured directly from the landowner sources, like me, and most of them won’t be able to supply more than a dozen or two credits, if that many.

Supplying these things to end-users is my particular REI stock-in-trade and I know what's out there for sources: About 2/3 of all the farmland in the county won't qualify to sell any credits at all and the few that do qualify will also have to be mortgage-free.

I saw this scenario coming more than five years ago and I’ve got stickers in hand right now, including all 260 that it will take to upgrade this subject property to 419 units. And, I’m drowning in further acquisition deals that will add many hundreds more of them to my inventory, at a happy profit.

So, my main interest is in reselling them, preferably in big handfuls, at a fair price for all.

“TDR”

If you’re going to sell a deal of any kind, you need to have a strong understanding of every major aspect of it, especially from the customer’s perspective. It’s pretty much guaranteed that you’ll have to explain the role of TDR magic stickers, so I’ll go into some depth here.

Officially, these magic stickers are actually called Certified “Transferable Development Rights credits.” (TDR). They are Certified, with individual recorded certificate numbers, by the county’s Planning and Development Services. PDS is also the agency that accepts them when they’re eventually submitted along with urban building permits.

Again, if the developer wants to max out their project profits on the particular parcel of land by building the maximum number of units, the only way that they can get building permits for the extra 36 units/acre (after the first 22) is to attach certified TDR credits with the building permit applications.

But, in short, TDR is a new ( completed in October 2013) resource land conservation incentive program that uses the free market to discourage population growth in the outlying resource land regions, where growth isn’t wanted and channels it into existing urban areas with much higher density, where it is wanted.

You’ll find the exact details of the TDR program here: http://snohomishcountywa.gov/DocumentCenter/Home/View/8118 If you’re going to explain this, and hopefully make a few happy bucks off this change while there is still low-hanging fruit and before I give up this niche to search for greener pastures, you really need to understand these details and be able to sound authoritative. Actually, TDR is not that complicated. The challenge is that it’s a brand new concept to most people.

It’s actually a real benefit to the developer to be able to pick up the extra 160% bonus project density as a certainty, with a known cost and immediately. The option of using the county’s formal subdivision process in this area would A. Probably take at least a year and B. Not be approved. The county is well-aware that resource land owners cannot conserve their land for future generations by selling off surplus development rights unless there is a free market demand for them. This demand is created by mandating their use in this first new urban growth area, and this requirement is deeply ingrained within county policy. There’s just no option.

The only thing that you really need to worry about, though, is to ensure that the TDR credits are Certified, and they will be. This can be verified through the county records. But, you’ll still need to be able to explain things.

“So, what’s all this about the $1 million finder’s fee that you keep hinting at?”

Basically, this $1 million fee, commission or profit etc. is what I am willing to pay to anyone who can put together a deal that combines this land and my TDR credits. It’s a package deal and it results in a per-unit development cost discount of 33%. The first person to arrange a lock in of the property and my credits will be first in line for the closing escrow payout.

I expect to gross $5.72 million on this single sale. So, I’ll be happy to share the wealth with whoever made the deal happen. The way I see it, I’ll still be netting $4.72 million and the extra million is just a cost of doing business. At this kind of economic level, who can really tell the difference?

And, I’m also being extra generous because, once I’ve done this first TDR credit sale, I can self-fund my further acquisitions, both Sending and Receiving lands, from then on out. So, this first land/credit package deal is just a warm-up lap for me. The big race starts after that.

The Basics:

Here’s the basic deal that needs to be put together in order to earn this fee:

The essential strategy is to find a commercial developer, and/or land investor who likes fast-appreciating markets. Then, explain this investment opportunity and sell them on the idea and get them to contact the listing agent to lock in the deal, with a short closing.

(Or, be a commercial developer, or land investor, yourself and get a $1 million rebate.)

So:

1. You need to find someone to either buy or otherwise lock in control of the subject development site. This is a direct negotiation and I have nothing to do with it. With a 33% average cost discount in comparison to the cost of all the other local sites, it’s going to be one heck of a great value, if you can afford to play in this financial league.

How that land lockdown is accomplished is up to the new buyer - I have no direct interest in that part of this transaction. So, if they “cut” the seller’s throat with a lowball offer, I don’t care. Since this land has been on the market for nearly a year, if I was a cash buyer, I’d start with a $5.5 MM offer and see what happens. But, even paying the full asking price will still deliver exceptional returns, too.

This shouldn’t be a tough sell, if you know some heavy financial hitters: The buyer is going to end up with a total net savings of about $6.3 million below the going rate for condo building “pads” without the TDR upgrades. On land with an asking price of just over $7 million, that’s a pretty significant savings in the long run.

Instead of the current market price of a $45,000 each, for 159 units, the new average cost will be about $30,000 each for 459 units.

That immediate savings, which goes straight into the developer’s profit column, is nearly big enough to pay for half the physical land, so I’d call that a “wholesale” price.

The total cost to purchase this site, with a guaranteed qualification of 419 condo permits (plus so ground floor mixed commercial) will be just over $12.5 million. So, whoever you offer this to will need to be able to either write a check for this much or be able to borrow it. It may sound like a big bite, but there are dozens of national developers for whom this is petty cash. They’re out there!

Alternatively, it’s not necessary to buy this land in order to buy my credits. They never expire and they can be used anywhere within this urban growth area.

Since they essentially replace the need for 160% more physical land, they should actually go up in value as the land that the impact rises in value for years to come, thanks to the explosive spillover from Seattle. Ultimately, there will be more land that requires TDR credits than easy-to-acquire credits, so I’m expecting a shortage to develop, possibly within a few years - I’m certainly intending to try to corner this market.

So, even as standalone investments, TDR credits should be rising at 12%/year until Seattle slows down, which won’t be for a while, yet. The major tech companies that keep opening branch offices in Seattle to attract top talent haven’t even started slowing down, yet. These are companies like Apple and Facebook, as well as many heavy hitters that you may not have heard of. Essentially, Seattle is becoming a suburb of San Francisco, now that expansion into Portland has been maxed out.

But, however my credits are sold, I pay the same commission rate.

If you can also squeeze a bird dog fee out of the land’s buyer, from the $6.3 million that they’re saving, that’s fine with me. But, I’m also in a hurry, so don’t let greed delay things. This isn’t necessarily a one-shot deal for you, either, even if none of the others will likely be as big as this one.

Actually, there are plenty of qualifying commercial sites along this stretch of Highway 99 that are even bigger, but they aren’t actively for sale. So, like a successful wholesaler, don’t be afraid to knock on doors even if there’s no sign on the property.

2. The second part of this package is that you need to make sure that the new landowner also buys their TDR credits from me, at $22,000 each X 260 = $5.72 MM. This is a discount of just over 50% of the going rate for the cost of land-based building permits, which averages out to a 33% discount for the entire 419 units.

Whether the development right that’s needed for a building permit is land-based or transferred in, they are all functionally equivalent to each other, except that each fills a certain section of the total permitting. Again, the first 22/acre come with the land and the additional 36/acre comes only with TDR credits. In other words, you don’t need TDR credits for the first 22/acre and you can’t get the next 36 without TDR.

This 50% discount on the 36 bonus permit level is how the total cost for the overall development is cut to 67% of the base cost and that part of the two-part package is where your dealbulder/finder’s fee comes from. Technically, this discount also comes out of my pocket, but I’m happy to leave it on the table for buyer incentives.

I hope that’s clear. Please let me know if it isn’t.

Options

If you’re the direct buyer/developer, or longer term investor, for the land and credits, I’ll rebate the $1 million to you at closing, either as a discount or payable as you designate.

Something else to keep in mind if you’re a licensed real estate agent or broker is that this is a listed property, with an asking price of $7.7 million. So, there’s also a hefty selling agent commission to be earned, too. That has nothing to do with me and if you can double, or triple, down, good for you.

Also, if you're not the final developer, once the land is pulled off the MLS and packaged with my TDR credits, I can steer you to a couple of large developers who should be interested in this simple and complete high density package.

So, that’s it in a nutshell: Be the first to figure out a way to put this 419 condo package together and you’ll earn yourself a cool 1 million dollars from me, payable out of the buyer’s funds at the escrowed closing.

Lather, Rinse, Repeat

As I mentioned above, this is not actually a one-shot deal. I can deliver plenty more of these TDR credits and there are many more commercial development sites in this same new density bonus upgrade area where they can be used for 160% upgrades. But, these other sites are not as big as the above site, which is the largest that is currently listed. However, they all qualify for this same deal and I pay the same finder’s fee of about $3,846 per Receiving Area credit sold (@ 36 per acre). I’ve seen a few other qualifying properties recently on Redfin.

Where to look for more TDR Receiving land:

There is no final map yet to delineate the exact boundaries of the “Highway 99 Corridor of the SW Urban Growth Area” upzoning that 15-016 enables. Actually, what’s going to happen is that the properties that qualify as mandated TDR credit Receiving Areas will have a “-ra” added to their zoning in the county’s master zoning map.

That designation change probably won’t be completed for a couple of months after the final passage of 15-016. But, in general, the qualifying properties will:

1. Have one of the commercial zonings (as designated in the long form of 15-016, linked above).

2. Range from the Everett city limits on the north end of this new zone to the Lynnwood city limits on the south - basically everything that is within unincorporated Snohomish county. This stretch of 99 stretches for about 3.5 miles in length, on both sides, and there’s a ton of land here that is ripe for TDR-enabled redevelopment.

3. Appropriate sites with the appropriate commercial zoning will extend about 1/2 mile on either side of Highway 99 between the North/South boundaries. There should also be other major transit routes (that end up at the Everett Transit Center) within the county jurisdiction to the west of I-5 that will qualify. So, I’d be looking for commercial land at least along SE 128th and SE164th, too. Anything commercial-zoned on a bus line within these 1/2 mile wide boundaries will probably qualify and it will be easy enough to verify it with PDS. I know that they’re out there.

If you have questions of general interest, please post them publicly below so that I can answer them just once. I do expect you to have read and digested all of this before you start asking questions, though. :-)

If you have economic and/or confidential stuff to discuss, please PM me. I’ll be happy to help you succeed in any way that I can, but time is of the essence.

And, one final thing: While I promise not to poach a live potential customer that you may have going, I’m also going to be contacting at least a couple of national developers who are already active in the Seattle area. So, this offer may be pulled off at any time and for any reason. Time is of the essence for both me and you.

But, there will still be more until I’ve harvested all of the profitable TDR credits that county resource lands have to offer - another 1,000 or so. My target “clip and flip” investments are probably only about 10% of the total resource land supply, but the rest aren’t going to be particularly profitable to invest in. So, we’ve got at least a couple of years of these deals waiting to happen, but no guarantees beyond that.

Becoming expert on this real estate subject can definitely pay off more than once. For that matter, this cutting edge TDR program is envisioned to expand into a regional program, and other new TDR programs across the US will be firing up. But, that’s for the next generation, while I’m out sailing.

Thanks!

Now, go fly and build us all a fat juicy deal!!!

Chris

@Inderpal Chadha

Great advice and investment strategy, Inderpal! I love your concept of adding value to the unused potential of a good property, instead of what most people do, which is to try to "recover" the lost value from distressed properties by cleaning up other people's messes.

Your strategy is a step above and I hadn't thought in these terms before. But, this opens many new REI doors. If I wasn't doing something easier and more profitable in Snohomish county, I'd be "finishing out" SFR's to their full potential east of Everett. The MLS is full of these kinds of entrepreneurial value-add opportunities for the creative visionary, while most people are scrambling for the scraps. I love my Redfin! :-)

FWIW, for other local investors, the Puget Sound Business Journal recently said that West Seattle is *the* hot neighborhood to buy in for the highly-paid California tech immigrants. It's out of the urban core and all that nonsense, yet just a 10 minute commute or a short bus ride to work downtown. And, the panoramic views of Puget Sound and the sunsets are stunning. What we consider to be ridiculous prices, they consider to be real bargains, and they've got the money to follow through.

If anyone is looking for new-in-the-box water meters, I have a couple of them, complete with boxes, for $90 each. I don't recall exactly what I paid, but it was a lot more than that. I was going to use them with my farm tenants who had cattle, but decided to throw them all out and start building high trellises for growing hops for the exploding local craft beer industry. Since this land doesn't need irrigation for established crops, I don't need the meters. 

Please PM me if you're interested.

Chris

Hi @Robert Slatkin 

Welcome to the Puget Sound region!

I'd recommend that you look for deals north of Seattle in Snohomish county, about 30 minutes north. Especially east of Everett and accessible via, and north of, State Route 2, the primary east-west corridor that starts from downtown Everett. This is where many of the Seattle price-outs are buying. South of SR 2 is mostly flood plain, then it's King county (where Seattle is located) and much higher prices, even though the commute to Seattle is about as long.

The lifestyle quality north of Seattle is much better than the areas to the south. East of Everett is much better than in the city, which is in the early stages of gentrification, with a lot of inexpensive SFR rentals in tough shape. So, the tenants who are attracted to the lower rental prices can be rough at times, and this is reflected in the neighborhoods. Unless you're going long with your investments and don't mind B/C-grade tenants, I'd avoid Everett for now for entry level.

Home prices in the semi-rural eastern county are about 1/2 of Seattle prices, are currently appreciating at about 12% annually, and there are lots of entry-level fixers to be found there. There are a lot of REI folks here and the competition for extraordinary deals can be challenging.

I invest in raw resource land in the county with Transferable Development Rights with an even higher value than the asking prices for the land. You get to turn a fast profit and still keep the land. But, this is a pretty esoteric strategy and, once my current 14 acre TDR deal wraps up, I won't be needing investment partners. 

In my researching for TDR land, I often run across great SFR fixer and/or teardown redevelopment deals that I'd consider if I was 20 years younger. A "building-ready" lot is worth around $100k and there are plenty of these with old mobile homes, in about that price range, that can be quickly replaced with a new house, without having to go through time-consuming septic approvals, environmental reviews etc. The county's Planning department is pretty lame and, with ever-more-challenging development requirements, it can take a long time to get the things done that they require with raw land developments.

I've recently started preparing pre-screening assessments on these types of potential investments for others who have found deals on RedFin, but aren't in the area and/or familiar with the neighborhoods. This is a general assessment of the neighborhood and how this property fits into it, as well as the general physical conditions that need to be addressed to make it rentable. This isn't a hard physical structural inspection by a qualified contractor. I'd start searching on Redfin for homes under about $125k.

Generally, if the recipient buys the property that I assess, they flip me a $500 fee. If my recommendation is a fast no-buy because of a dealbreaker, I give those away for free. I'll be happy to do this for more people. If they're steady buyers, I'll also bird dog deals, although I don't do formal wholesaling with a locked down property etc. I've lived in the area my entire life and I'm mostly a native guide with REI experience. I'm not looking to do this full time, but it's a fill-in while I'm wrapping up my current deal, which involves some time-consuming boundary line erasures etc.

Please feel to PM me with questions etc.

best regards,

Chris

BTW, I follow the Seahawks, going for a three-pete to the Superbowl. Too much heartache with the Mariners. :-)

Hi John,

Glad to help. Thanks for the colleague request.

The concept of TDR is fairly simple and straightforward. But, find opportunities to make a happy buck off it can get complex. The most important thing is to know the details of your local program like the back of your hand, then look for loopholes.

Just to give you and the other BP'ers a deeper handle on why some TDR programs work and some don't, I just uploaded an excellent study on the topic to my FilePlace at http://www.biggerpockets.com/files/user/ChrisNewma...

These are the universal elements and actually might not be a bad place to start. I can't help but feel that some of the failed programs might offer even better opportunities than the successful ones. 

BTW, the easiest way to find out about TDR programs in your state is to Google "TDR" and "(your state name)". And, if anyone wants to follow this, add TDR to your keyword list. If there's any interest, I'll keep sharing and discussing. 

C

Hi John,

I like playing with raw land, too, in Snohomish county, WA, just north of Seattle. 

In my case, my specialty is flipping the transferable residential development rights from resource land such as farm and undeveloped rural-residential multi-acre parcels. As far as I can tell, I'm the only REI in this specific niche within the county. I already have land holdings near Everett that will certify out at 304 salable density bonus credits.

To play this game, I get certified and then "clip off" the transferable development rights for sale to urban developers in the county, who can cash them in for an increase in dwelling unit density from an original 22 units/acre to 58 units, and building heights from 45' to 75'. Developers will not be able to get these bonus building permits without providing such TDR credits.  This TDR is a new program that has been in development for 30 years and should ignite into an active free market for credits this coming July 15. The Snohomish county program details can be found at http://snohomishcountywa.gov/DocumentCenter/Home/V...

My niche is the small amount of qualified Sending land that is also priced well below the value of the new credits that can be clipped off and resold for an arbitrage profit. Some parcels are actually worth as much or more after the credits are clipped as before. Basically, these are lands that technically qualify as Sending sites, but that have issues such that nobody really wants to build there. Water issues are the most common. 

But, the profit margins look to be eye-popping, sometimes on the order of 10X or better. Typically, as I'm searching for further acquisitions, I don't even consider deals that won't return at least a fast 300%, with no further CapEx, just by clipping-and-flipping. Right now, I'm drowning in much better opportunities and by the time I wrap those up, I'll be retiring on some riverfront property that I like.

The neat thing with TDR is that, after you've sold off the residential development rights, you still own the land and get to use it in all the same ways as before, except that you can no longer build houses on it. There are a variety of ways to deal with this "residual" acreage. Share cropping with a retail farm stand/farmer's market is one, if it's the right kind of land in the right location. 

But, if steady long term cashflow is a goal, with no management, one can always sell farm land on a low down private contract. With no structures, there's little to damage and it's not like a defaulting tenant can steal it. 

The highest value post-TDR use, though, is to go further and create "ecological mitigation" credits and then sell those, too. I have heard, but haven't confirmed, that these credits can sell for up to $100k per acre in places like nearby Seattle. Since downtown development land goes for $30 million/acre, $100k imposed by the progressive city government for a 40 story building permit is a minor annoyance. But, if the $100k is coming in from a $3,000 acre from which has already been harvested $20,000 in TDR credits, that's not a bad ROI.

For the truly ambitious, the right site could then be further developed (outsourced) as a "green cemetery," which I refer to as "selling $500 post holes" at a few thousand per acre. I just missed out on a close-in 50 acre site for $250k that would have done all of these profit centers. Arghh! :-)

BTW, I'm actively looking for working partners with some cash to put in for the short to mid-term. There's more low-hanging fruit here than I'll ever need, but hitting the ground running to pick it before land prices start reflecting the new higher values requires more capital than I have and I don't do debt.

There are two main companies in the US who do the work of creating and selling eco-mitigation credits on a joint venture basis, separated by the Mississippi river. The West coast one, with full details, is at http://www.wildlandsinc.com/ and they're actively looking for more project land. I don't recall the name of the East coast company (which used to be in partnership with Wildlands), but it's somewhere in Florida.

I see that MA also has it's own TDR program. The starting point for the info is http://www.mass.gov/envir/smart_growth_toolkit/pag... I haven't read this page to see what's offered as conservation incentives, and then compared that against your local market prices for "junk" land. If you follow up, please share what you learn here. There are about 200 TDR programs across the US, and every one is different. 

You might also look up "eco-mitigation" credits for MA. I wouldn't be surprised if Boston required this type of "remote eco-mitigation." 

best regards,

Chris