Buying commercial property with redevelopment potential

[Glen Campbell]

What is the best strategy for buying on (main) streets with redevelopment potential?  My observation is that in our market, very prime development sites will sell for $40 million per acre, once assembled  (priced off their potential for condos, at $1000 per sf retail, $200 per buildable sf for the site) , but smaller properties with the right zoning sell for maybe half that figure (e.g.  $400 per square foot of  land area; i.e. ~$20m per acres).   Presumably the reason is that it takes many years to assemble several contiguous parcels needed to do an efficient high-rise redevelopment .  This discount seems high, since the sites bring in rent (2-3% yield), but maybe that the "right" discount needs to reflect the risk that the assembly could take decades, or that you won't get your fair share of the ultimate value because of the dynamics between the parcel owners.   I assume the best strategy is to buy the biggest possible parcel on a strip where the other parcels are relatively large.... but would be interested in anyone's experience/views on this.

[Joel Owens]

Larger new development projects you have to look at the timing in the cycle and the appetite by the city, county, state, national government for it to help with funding and development cost offsets.

Those types of deals you can win big or lose everything. If cycle goes downward mid-project you have to be able to hold on until the next upcycle and that requires extremely deep pockets.