Buying Property with Vacant Parcels-Considering Options

[Edward Rogan]

We recently opened escrow on 2 properties in Brazoria County, TX. They are less than 2mi apart and they each have a vacant, adjacent parcel, which was included in the deal price. The parcels are large enough to build on and one is up against a main thoroughfare in town. We are raising private equity through a Reg D offering as our capital source and placing agency debt. 

We underwrote the value assuming the existing income only and did not assume any improvement to the vacant parcels. Therefore, if we just focused our plan on the existing income producing properties, it won’t affect our projections. 

However, we would like to consider the possibilities of building storage, garage units, Re-zone and sell to retail developer etc.. 

Our question focuses on how to structure the deal with equity and debt, in order to gain the most flexibility with the vacant land. We are open to including it with the deal so our investors can benefit from the upside, but not sure if we should include the improvement costs with initial equity raise or explain the circumstance and ask if they’ll consider a capital call at a later date. 

If anyone has experience with similar deals, we thank you in advance for taking the time to provide your insight. 

Sincerely,

Ed Rogan