Structuring the right deal?
I own approximately 30,000 square feet of land in the LA area, and a developer has expressed interest in either purchasing or co-developing the land. We could potentially subdivide the lot into four lots and build a main house, a Junior Accessory Dwelling Unit (JADU), and an Accessory Dwelling Unit (ADU) on each lot. There is an old house with some code violations and a tenant in it. Our intention is to demolish the house and proceed with the subdivision.
Since I lack experience working with developers, I'm unsure what would be a fair arrangement for me in this deal.
How much does a developer typically charge for the scope of work? I'm considering 20% of the final profit. I would appreciate your thoughts on this figure:
1. Subdivision process (estimated duration: 2 years)
2. Entitlement to construction process of 4 lots
3. Property management (if we decide to hold onto the property)
If I were to sell the lot, what would be a fair price for me, considering that I can subdivide it into 4 lots? Would charging the market price for four lots of vacant land be considered fair?
Thank you!
Who is going to get the construction loan and be the guarantor for it? For the amount of work that the developer/builder partner will put into it, 20% might be low (especially if they are going to be the guarantor for the loan), but if they are willing to take that, then good for you. No one can tell you the potential value of the lots without knowing the site development costs, city/DWP fees and what the homes could ultimately sell for. Very roughly, if the homes would sell for $1MM each and assuming the land is flat and without significant site development costs, I would say the lots might be worth 200-300k each with the final map recorded. Again, it all depends on what part of LA we are talking about? Van Nuys? Echo Park? Hollywood? Northridge? To put things in perspective, I have sold about fifty small lot tract maps throughouth LA over the past 15 years.
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Real Estate Agent
- Cash Source Homes
Quote from @Bryant Brislin:
Who is going to get the construction loan and be the guarantor for it? For the amount of work that the developer/builder partner will put into it, 20% might be low (especially if they are going to be the guarantor for the loan), but if they are willing to take that, then good for you. No one can tell you the potential value of the lots without knowing the site development costs, city/DWP fees and what the homes could ultimately sell for. Very roughly, if the homes would sell for $1MM each and assuming the land is flat and without significant site development costs, I would say the lots might be worth 200-300k each with the final map recorded. Again, it all depends on what part of LA we are talking about? Van Nuys? Echo Park? Hollywood? Northridge? To put things in perspective, I have sold about fifty small lot tract maps throughouth LA over the past 15 years.
If they were to be the guarantor for the construction loan, how much should I offer? The developer wants me to throw the number first. I need to set up my BATNA before the negotiation...
The lot is in North Hollywood R1 Zone.
Thank you for sharing your expertise.
@Joyce Kim, have you considered your options under SB9? If you're able to subdivide the lot into four new R1 lots, then each R1 lot can handle a duplex and two exterior ADUs -- ie, two duplexes.
