building mid grade apartment complex

[Scott Lepore]

My mechanic is interested in scraping his shop and building an apartment complex.  It is an 18,000 sf lot and already has sewer, water, gas, electric.  Lets just assume for the case of this discussion that I know what I'm talking about when I say it is a no-brainer location.  The owners of the land are auto mechanics and want to be in on the deal.  They don't want to sell land.  They want to scrape and build apartments.  I have 6 years experience with fix and flips and 2 years with C class apartment complex investing.  Zero experience with new builds.  I feel it would be best to hire a consultant since I know that things always go wrong and are probably magnified 10 fold versus fix and flips.  I guess my question is how to go about dividing up the pie and who gets what and does what.  And how do the owners get paid when it is their land to start with and should they use the equity in the land as construction loan.  This is a prime location in a quaint suburb of Denver that is ideally located close to shopping and light rail and bike paths and there are nice B class apartments across the street.  As you know Denver is insane right now as far as rental demand and new construction.  I'm just kind of at a loss as to how to go about getting the ball rolling.  I know I need to get it approved by the city first and find money.  But beyond that I'm still brainstorming on all the roles involved and how to make sure everyone gets a fair split and who takes on what risk and is paid accordingly, blah, blah, blah.  Any help is greatly appreciated.  If anyone on here is interested in participation in the deal in some fashion, we can discuss that too.  This email is not a solicitation for funding and should not be viewed as such.   

[Dorothy Ma]

@Scott Lepore As @Emilio Ramirez mentioned - zoning and city first.  As a mechanic shop, it's most likely zoned commercial or industrial and you'll need to rezone to residential.  Depending on the jurisdiction, rezoning is pretty much a pain in any city and take time.  With your fix and flip and construction experience I'm sure you've familiar with dealing with them and may already have gotten the process started.

Next as @Matt M. mentioned, a mechanic shop is going to need cleanup (environmental abatement) that could add to your cost.

A consultant is definitely wise.  I am an architect by profession and my husband is similar to you - has his contractor's license but worked mainly on fix and flips and remodels.  We are in construction for our first new build of 6 townhomes right now and luckily we have mentors who are helping us through the process.  I'd be happy to share my experience and some things you should look for in your consultant if you want to PM me.

In terms of dividing up the profits, as mentioned earlier, what is your intent? You call these apartments, so are you going to rent them to a capacity of 90% or so and try to sell the apartment complex? or are you more referring to condos or townhomes that you can sell individually once it's completed?  Typically, the construction loan will take the equity of the land and roll it into your loan, since you'll need to put a certain percentage down for the construction loan.  So if the land is worth $300K let's say, and the construction loan is for $3 million, the land value of $300K will be rolled in as a 10% equity for the loan.  You will most likely need to bring a lot more than 10%.  That way, you can just treat that as a monetary investment and give the mechanic/investor a percentage of profits, 15%, 20%, whatever you agree upon - of his 300K.  Does that make sense? PM me if you have more questions.