Buying development property

[Ryann Eby]

Hi All,

I'm looking to get some advice on a piece of property I have been looking at. A bit of background about it.  It's a large parcel of land that is right in the middle of a new residential development in our city.  Generally the City is the only one that has land for sale.  So this is a bit of a unique property in that it is the only piece available to purchase of anywhere near its size.  

This makes it hard to price because there is nothing at all to compare it to.  The seller is basing the price on some of the larger parcels that were sold be the city recently.  He is also using some information about his property that he believes is correct but I am finding out is not such as zoning.

I have had several meetings with the City and Government and I am running into some hurdles.  It is currently zoned in such a way that no permits for any type of construction can be issued.   A complete rezoning of the property would be required before anything could be done.  

I do believe this would make it just about impossible to get any type of financing for it as any appraisal will come back with a very low valuation .  Can anybody confirm this?  It also puts the seller in a tight spot as he currently lives on the property, but the current zoning wont allow any improvements to his house or land.  He is not aware of this and thinks it is zoned some type of residential.

Currently the property is not serviced but will require a connection to the city services.  The services are close to the property and he believes that the developer will be able to tie right in.  I have met with land services and they have not given me a exact number but they said to expect a connection fee north of 1.5 mill.

There are a few more issues.  I do believe the seller is genuinely unaware of these conditions.  I know they are wanting  around 6-7 mill, and without all the issues I think a person could get close to those numbers.  With all of the issues I can't get comfortable over 3 mill.  There is definitely profit but also a tremendous amount of risk. 

We have been short on land for the last several years but now they are forecasting a surplus.  The property has been for sale for several years and with a surplus of land now and the other issues I think it will be almost impossible to sell.  They also can't really even upkeep their house as any building permit application will be rejected.  This puts the seller in a very tough spot.

My question is how to approach them.  I have met with them once and they asked me to bring them an offer when ready.  So do I now list all the problems and give them an offer that is way lower than what they are expecting?  Do I tell them to go the various departments and confirm the issues so they have time to reevaluate the price?  I am little stuck here as I think they are going to be a little shocked to find out that absolutely nothing can be done on the property with the current zoning.