Land Acquisition and Entitlements Financing Equity Partner

[Timothy Hicks]

Hello,

    I have recently started my journey into land acquisition and  entitlements, and I'm having some issues with the financing side of things. Originally, I was hoping to have the property owner hold the property while I take the agricultural property through the feasibility study and rezoning to have paper lots approved by the city I choose to annex the property into. 

   However, I am dealing with a lot of 1031 exchanges and investors buying raw acreage quickly here in Colorado. This is where I am having my major issue. My ideal situation is to find a finance partner to help fund these deals for approximately 12-16 months, and we will exit the deal after selling to a significant multifamily, home builder, or developer for them to build on the approved land. 

   The great news is I have the time, knowledge, resources, and critical thinking skills to bring these projects to fruition. Unfortunately, I don't have the working capital to procure the land and finance the entitlements process. Can anyone point me in the right direction or help me find a solution to my funding problem? I appreciate all input, as I have a deal in the works ready to start at any time.

Thanks,

[Jay Hinrichs]

its not realistic to buy land before the rezone has been done.. what happens if it fails.

Unless the rezone is basically guaranteed.. also the issue is cost of money holding land that long .

I help fund a large project out of the springs where it was bought prior to approvals but it was already properly zoned so it was just prosecuting the map under the given zoning and that still took a few years. However I would not fund a deal based on a rezone unless it was a screaming deal and it could be sold as is for the current use so we did not lose money.

[Kenneth Bell]

Quote from @Jay Hinrichs:

its not realistic to buy land before the rezone has been done.. what happens if it fails.

Unless the rezone is basically guaranteed.. also the issue is cost of money holding land that long .

I help fund a large project out of the springs where it was bought prior to approvals but it was already properly zoned so it was just prosecuting the map under the given zoning and that still took a few years. However I would not fund a deal based on a rezone unless it was a screaming deal and it could be sold as is for the current use so we did not lose money.

I will 100% agree with @Jay Hinrichs. You don't buy land and then entitle it unless you can sell it and still make money if your plan works. My contracts for land are contingent on the land entitlement being successful that way I am only on the hook for my pursuit and rezone cost if not successful. I don't know any developers that do it any other way. A bank will be way more likely to loan on land already entitled. 

@Jay Hinrichsundefined

[Jay Hinrichs]

Quote from @Kenneth Bell:

Quote from @Jay Hinrichs:

its not realistic to buy land before the rezone has been done.. what happens if it fails.

Unless the rezone is basically guaranteed.. also the issue is cost of money holding land that long .

I help fund a large project out of the springs where it was bought prior to approvals but it was already properly zoned so it was just prosecuting the map under the given zoning and that still took a few years. However I would not fund a deal based on a rezone unless it was a screaming deal and it could be sold as is for the current use so we did not lose money.

I will 100% agree with @Jay Hinrichs. You don't buy land and then entitle it unless you can sell it and still make money if your plan works. My contracts for land are contingent on the land entitlement being successful that way I am only on the hook for my pursuit and rezone cost if not successful. I don't know any developers that do it any other way. A bank will be way more likely to loan on land already entitled. 

@Jay Hinrichsundefined

some markets are just too hot and have too big of players chasing what little land there is and if your going to get anything you have to close.. N. California is that way or at least when i was running developments for a big syndicator we had to buy them up front and close. you had 45 to 90 days for DD then you have to close.. When I came to Oregon that changed to what your describing. Although in Oregon rezone are nest to impossible so only the very long term land bankes will go after those.. So you see land listed and sits on the markets for years if not decades.. Other wise land is tied up entitled then closed.. 95% of the time here in Oregon/washington..

[Chris Seveney]

Quote from @Jay Hinrichs:

its not realistic to buy land before the rezone has been done.. what happens if it fails.

Unless the rezone is basically guaranteed.. also the issue is cost of money holding land that long .

I help fund a large project out of the springs where it was bought prior to approvals but it was already properly zoned so it was just prosecuting the map under the given zoning and that still took a few years. However I would not fund a deal based on a rezone unless it was a screaming deal and it could be sold as is for the current use so we did not lose money.

 ^^^ This Here ^^^^^^^

I worked for a company that bought land before entitling it and in 2008 they went under because they owned all this land, were paying carry on it and could not get it entitled.

You get it under LOI. If it is residential you may offer $X per entitled lot, so if you get it entitled for 30 lots the price is very different than 50 lots. You will still have to spend significant dollars getting it entitled and should have proceeds for that. Typically an investor will not get into that type of deal unless they get significant upside as there is a chance the entitlement does not work and all that $ ends up going to $0.

[Robert Ellis]

we just passed on a deal in columbus that was 17 acres for 20k an acre in a town within 30 minutes of here for 300k because the seller wouldn't' allow us to do entitlement times. I had a partner who does land entitlement in 15 cities and I've been an agent for 10 years and I wouldn't touch it unless you can get it approved while it's tied up with minimal efforts. That's why the infill lot strategy we work with in Columbus and tampa florida do a lot better because it's in and out and the entitlement process is not very long or complex for small infill lots. 

[Kenneth Bell]

@Robert Ellis

Did you ever get your land situation figured out? I am always interested in infill lots if the density and market is good. If land needs to be entitled, I will do a contract based on the entitlement being approved. I am interested in Tampa and OH if the numbers work

[Robert Ellis]

Quote from @Kenneth Bell:

@Robert Ellis

Did you ever get your land situation figured out? I am always interested in infill lots if the density and market is good. If land needs to be entitled, I will do a contract based on the entitlement being approved. I am interested in Tampa and OH if the numbers work

 Yes would love to chat. I've been in Miami looking at deals. The average price per land for urban infill going 6-12 stories high on a higher density product is about 5 million an acre up to about 25 million an acre. downtown market premiums I've seen at the highest are 1200 a sq ft. in columbus you can get land about 1.5 million per acre downtown at best price, sells for about 600 a sq ft max, very little competition compared to miami. tampa I didn't really look at too much because miami has 22 zip codes that you can build at least 6 or 8 stories on and just a much better landscape than other markets. tampa is a little bit bigger than columbus but in my opinion more of a suburban market. miami is landlocked and very limited so everything is in redevelopment. both are amazing opportunities but the barrier to entry is much higher in Miami with the smallest plots of land infill going for at least 1.5 million I would say in areas like Wynwood Norte, Wynwood, etc. we looked all over but prefer east of 95 due to the condominium opportunities. multifamily is very strong in both markets but the condo premiums make it almost silly not to do one from the start and the use of deposits versus a single asset lease up and disposition is a longer sales cycle than the condo buildings being sold out prior to completion. I like the affordable price point and smaller units personally. if any of that strikes a chord would love to chat. I've looked at like 500 plots of land and made about 40 LOIs, most of what we targeted was land owner contributed to the development and underpriced land identification that we can get at least a 5x value bump on entitlement. the numbers are much higher in columbus where the downtown district in 43215 isn't bought out like Brickell or Edgewater. we can justify any land cost by just going more vertical. columbus is untapped with less than 1000 units proposed per year it's unbelievably open with 50,000 units behind and very high absorption. 

[Jay Hinrichs]

Quote from @Chris Seveney:

Quote from @Jay Hinrichs:

its not realistic to buy land before the rezone has been done.. what happens if it fails.

Unless the rezone is basically guaranteed.. also the issue is cost of money holding land that long .

I help fund a large project out of the springs where it was bought prior to approvals but it was already properly zoned so it was just prosecuting the map under the given zoning and that still took a few years. However I would not fund a deal based on a rezone unless it was a screaming deal and it could be sold as is for the current use so we did not lose money.

 ^^^ This Here ^^^^^^^

I worked for a company that bought land before entitling it and in 2008 they went under because they owned all this land, were paying carry on it and could not get it entitled.

You get it under LOI. If it is residential you may offer $X per entitled lot, so if you get it entitled for 30 lots the price is very different than 50 lots. You will still have to spend significant dollars getting it entitled and should have proceeds for that. Typically an investor will not get into that type of deal unless they get significant upside as there is a chance the entitlement does not work and all that $ ends up going to $0.

the projects I am funding for pre development costs in VA are running 600k to 1mil ..
out west here usually 100k to 200k can get you to pre lim plat.. CA can and is the 500k to 2mil or more depending on the location  jurisdiction etc etc.. of course small plats are not that much.. but if you need to do an EIR ( Environmental Impact report) we were paying 200 to 300k for those back in the late 80s..