Land Value After It's Shovel-Ready?

Question

I've seen some pretty healthy asking prices for land where all entitlements were obtained & approved.

Also, I do understand that there's a cost paid to the geotech, architect & city prior to approvals.

But... Is there a formula to how much more that land is worth when it is shovel-ready?

Thanks in advance.

Chris Blackburn · Answer

Entitlements are buying time.  I am involved with overpaying on a 114 unit apartment project that we are closing on that I should be able to build in 90 days. (DD coming up)  It was sold to me as permit-ready- (it was not).  The land was originally purchased for $500,000 and we believe they spent an additional $100K on it.  We are in contract for $1.8M.  They have an appraisal at $1.6- Those are some nice numbers.

Bear Geiger · Answer

The answer is that even if you had a formula it doesn’t work if you move 5 miles from the current site. The answer is also very different depending on the market.  The best thing you can do is look at comp prices and see what other similar land is going for in your area.  My mentor taught me to double my estimates for what I think my project will cost and ½ what I project my income to be.  If you still have more income than costs, move forward.  It’s a bit extreme, but I follow a similar rule (about 50% over and under rather than 100%)

Seth Borman · Answer

Start calling brokers and finding ones that will talk to you about the market.

Chris Blackburn · Answer

I think there is a formula but it would be based on how far the entitlements go.  The value of 3 acres zoned multifamily vs 3 acres that has full entitlements (meaning you just go to the city to pay permits and start building) is significant.   I would estimate that it could double the value of the property.  At $200,000 an acre for flat zoned RM with no entitlements to $350-400K per acre with.  A couple of ways to look at this is the price per door.  Raw RM land flat may be worth $8,000-12,000 door-  Fully entitled could push this to up, fully entitled with approved plans could push this up to $16k-$24,000 per door.  Then you have to look at the density allowed.  (We see 20-24 per acre in my area)   Different when you are doing urban infill with residential highrise.  (different beast)  I am a good meat and potatoes builder on the apartment side.   Nice finishes- Nothing fancy, just what the people want.

Michael Le · Answer

Entitlement risk is huge so some developers will be willing to pay a lot for shovel ready. I think how much will depend on how cumbersome the entitlement process is for that area. I talked with a developer in Santa Monica, CA and they said it takes 2 years for anything to get done. So I'm sure someone with money and idea ready to go would be willing to pay to cut that time and risk out.

Stephen J Davis · Answer

I don't know much about raw land but I would think that you reach out to 2 or 3 agents or brokers that specialize in land sales and get their advise. A developer would be a good person to talk to as well if you can find one.

Frank Macias · Answer

A good rule of thumb is that land entitlement essentially doubles the value.

Land Value After It's Shovel-Ready?

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