Partnering with someone on land they own?

[Account Closed]

I'm interested in partnering with someone on new construction for a multi-unit facility. My question is, he owns the land already and I am just going to be providing a capital investment into the construction itself. What is the best way to structure a deal like this? 

Thanks.

[Scott Choppin]

Owner would need to put the land into the new LLC.

This will be required by the lender, as they will want to know the land is in the deal level LLC, so that they can encumber the value of the land, and to know that the land is available to build the new buildings on. They wouldn't want to finance a new build on someone else's land. As importantly, you also want this, to protect against him yanking the land out of the deal altogether after you put your money in.

Likely a ground lease structure on a residential development project would be too complicated for most lenders. The brain damage and complexity would likely be a burden on the deal.

If it were my deal, I would require the land to be transferred into the new LLC, or walk away.

Land JV's are a hard sell to most land owners, You usually get hung up when the seller realizes they have to put their land value at risk (as the "investor"), and once you tell them they will subordinate to the new construction loan, that's normally where we lose most people. Land sellers are generally not developers, and the risk of investing and subordinating is usually too complicated for most non-sophisticated land owners.