How to structure a development deal

[Account Closed]

I have the opportunity to purchase land for development but the seller wants in on the deal and I don't know how to structure the deal. The current owner was going to develop the land back in 2008 but, well we all know what happened. The owner had it approved for development with the county for up to 27 lots (supposedly with zero lot lines). 

He owes $5000 in back taxes and is looking for some money upfront in the amount of $5000 to $10000 with the understanding that I would pay off the taxes. He is also interested in being some sort of partner in the deal. Does anyone have any recommendations for how to structure something like this?

I would be responsible for structuring the deal and bringing in investors, which adds another set of challenges for how to structure it. What would be the best way to raise money for a deal like this? Syndication? A fund? Private Lenders? 

Any advice would be greatly appreciated.
 

[Sean Jones]

Hey Matthew, this sounds like an interesting opportunity for you. Here are my initial thoughts/questions:

Do you know the approximate value of the land and is it owned free and clear of any debt? (X - $5000) If so, you could simply have the land owner contribute the value of the and as equity into the deal and give them a percentage based on the total equity required for the deal. This as I said is a very simple way to structure it, since you would otherwise have to raise equity and or debt to purchase the property and then have holding costs until the project was fully entitled and ready to be built.

Is the land fully entitled? If it was previously approved, what is needed before you can put a shovel in the ground and who is handling that process? Do you need to re-engage consultants to finalize plans with the city? Architects, engineers etc.

Who will be liable for any debt or construction loans obtained? If the land owner is not going to be signing on any loans you should further reduce their percentage based on the added risk being taken on by you and your investors.

In any case, you should structure the actual "partnership" or entity with you as the general partner or managing member depending on your entity structure, so you have control of the operation.