Structuring a deal for commercial land with a master developer

[David Jiang]

Hey everyone,

I need some help and advice on how to structure a deal with the seller/developer of a commercial lot that I'm interested in. The potential deal is for a 20k SQFT lot within a larger, planned development for a shopping center that the seller is developing himself. My plan is to carve out a chunk of land with frontage to the main road and put up a 4-5 unit building for smaller eateries and mom and pop businesses. 

My biggest concern is buying land in a planned development where I cannot develop on my own without the master developer first laying down the basic footprint (driveways, utility connections, etc). How are deals like this typically structured such that there are performance requirements and deadlines placed on the master developer and recourse for me in the event that he does not follow through with his intended plan for the shopping center?

I have an agreement with him to seller-finance 70% of my purchase price and I suppose this inherently incentivizes him to deliver on his end, but that's not terribly comforting knowing my only recourse if something goes wrong is to walk away and lose "just" the 30% down payment. 

Really appreciate any insight on how this is usually handled in the commercial world.

[Christopher Telles]

If construction on the Master Planned Development, and specifically the center you reference, has not begun then do not close on the property. 

Since it sounds like you've already negotiated price and terms, you'll need to attempt to renegotiate the closing terms, and if possible the conditions present to trigger a closing. 

If your use of the land is dependent upon the performance of the master developer completing X, Y & Z before you can freely and readily utilize your land then X, Y & Z should be a condition precedent to trigger your close of escrow.

As the buyer in a master planned development, you want your PSA with a reasonable deposit to act as an option to purchase that is conditioned on future events being met. You will have the condition to close if the terms of the PSA are met by the seller, and then also have the option to cancel the PSA if they are not. The Seller has performance conditions they need to meet to trigger the closing. They do not have the option of canceling the PSA. 

Many Master Planned developments sit vacant and unbuilt by developers who have great plans but not the resources, or access to the resources, that are required to begin, sustain, or complete the development. When discussing master planned developments its important to keep in ming every service and societal benefit we all normally take for granted, streets, lights, gas, water, toilets, rain runoff, etc., must be 'built' into the master planned development. Any master planned development is a huge commitment for its developer.

The only exception would be if the developer was a local 'billionaire' type developer operating a gigantic development organization. 

My suggestion is you seek out the assistance of a good real estate attorney to help you draft or alter the PSA to include terms that help you reduce monetary loss and your development position.

Avoid letting easy or convenient sale terms dictate your decision. After all, a great 'deal' where you can lose all your capital will never be a good deal. Risk mitigation is more important, particularly in cases such as this where so much is dependent upon an others performance.