Rezoning & New Multi-Family Development Strategy

[Mike Russ]

Hi - I am looking for some guidance or references on how to proceed with an opportunity that is potentially available to me in Dayton, OH.  There is a large parcel of land in a desirable neighborhood that is potentially being rezoned from agriculture to multi-family.  It has some hurdles in the zoning process with getting water/sewer extended but I think in the long-term it is feasible with the discussions I have had with local officials.  The property owner is ready to walk away and sell the property.  I have interest in buying because I believe if I develop a good strategy to work with a developer here once I complete rezoning, there is a lot of potential in the location.  I am curious to hear/learn more about what type of business approach is common or suggested when landowners work with developers and what I need to watch out for.  I have experience in buying/holding existing rentals in this area but I have not done development at this stage.

Initially, I was thinking about a model where we would potentially divide the property and construction in 3 phases once I complete rezoning and I sell to the developer 1/3 of the parcels at a time.  I make the profit on the land sale only for my efforts rezoning and let the developer handle everything else including road/sewer extension as they develop the site.  

Any other thoughts, suggestions, or references on what I should read/listen to would be very much appreciated.

Thanks,

Mike

Th

[Greg Dickerson]

Originally posted by @Mike Russ:

Thank you @Steve Morris for the reply and advice.  I will definitely make sure to have a condition in the contract that it is contingent upon the zoning change if I agree to purchase the property with the assumption the zoning change will be made.  

You do not want to close on the property until you get all of the approvals and permits to build what you propose. Just because the property is zoned for a certain uses or number of units/lots/sqft etc. doesn't mean you can actually build what the zoning allows. You also want to tie the purchase price to the density you anticipate as that is what dictates value. 

You have a couple of options. One is to find some developers and get input on what the highest and best use of the property would. Then pick one to work with and tailor the project to their needs. They will likely want to control the entire project and may or may not want to phase it depending what the end use is.

Second option is to sell the land as is and let the developers handle everything but this will generate the least amount of profit.

Fully entitled parcels will carry the most value. Developers can only pay a percentage of the value of the finished project for land. The numbers have to work and they need room for a profit of 25-30% so you can work the numbers backwards to determine your sale price.