Compensation from developer

[Nikolay Georgiev]

Hi guys,

I want to offer my land plot to a developer. The deal is as follows: I transfer construction rights to him in exchange for a share in the completed development. The planned residential building will have app. 15 apartments about 1,500 m2 aboveground.

My question is what percentage of the completed building (% or number of apartments) should I ask in return for the land?

I know it depends on location, but I am looking for some reference point since I have zero experience on the matter.

Thanks!

[Wayne Brooks]

Lots of different ways to look at it. Depends on the value of the raw land verses the equity in the finished apartments. I would guess the value of the land plus maybe 50% in equity in the completed project, some might say double the value of the land in equity. There are risk of course, the project could go belly up. You’d have look at the experience of the developer and the financials.

[Barry Ruby]

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

[Barry Ruby]

To be exact, land = 33% of total project