Townhome development in middle tn

[Derek Bell]

I am used to posting under “commercial real estate”. I usually only do commercial/industrial developments. But I have an opportunity that I need some input. A seller and I are going to be under contract soon for a 13 acre parcel in middle TN. Very up and coming city located about 30 miles south of Nashville. Property is located at a wonderful highly traffic location. 18k cars a day and will only be increasing. 5 of the 13 acres is zoned commercial, the back 8 acres is zoned large lot residential. I want to keep the commercial zoning up front and parcel those off. The back 8 acres I want to rezone to a small lot townhome use. Just initial talks w my civil, I think we can get 40 pads or so. So, how much do residential developers pay for 40 or so townhome pads?

I am not going to do any improvements to the land, just improvements on paper etc. The topo is good. Not great, but good. All utilities are at the street. 

[Bryant Brislin]

Technically, developers come up with a land value for what a builder may be able to pay for paper lots by using a proforma (financial model) to determine a residual value.  So you are putting in various inputs/assumptions, like gross revenue (total sales prices of homes) less soft costs, hard costs, city fees, desired profit margin (i.e. 15% of gross revenue) = residual value (what the land is worth). Of course, developers (sellers) and builders (buyers) have debates a lot on those various line items in the proforma (especially hard and soft costs). A very, very rough metric that you can possibly use to get an idea is 1/3, meaning if a new home may sell for 500k, then a developer may be able to pay 165k per paper lot, but of course there are so many variables, but that can give you a rough idea.