Large scale land subdivision projects

[Account Closed]

Does any BP member has professional experience dealing with large scale land subdivision projects? I found very little information about that subject on the forum.

I've ran a few successful subdivision projects back in Europe (France) and developped some parcels in California, and would be interested in learning more about the subject.

These operations can if executed properly, be very profitable, but i have yet to confirm if it is feasible in the US, anf if there is demand for shovel ready lots. 

In my home country, land subdivision can be very lucrative as it usually requires little money down and the cycle is usually faster than construction (less than a year). It also bears significantly less risk than ground up construction.

On the financial side, lenders will usually only require 15%-25% down, but will ask above 65%-70% pre-sale before underwritting. Pre sale proceeds bring more equity in the deal and if that's not enough mezzanine debt can  be raised through crowd funding or other private lenders; as a result almost 100% of the developer equity can be cashed out if structured properly. These deals normaly need to be above $2million to make sense as engineering, utilities and road works need scale to make economic sense.

I am not sure if this deal structure would even be legal in the US, and if this type of projects would be profitable. 

Some places like Texas, Utah, Colorado have huge population growth, so i guess it could make sense in those places..

Any info welcome

[Bill S.]

@Account Closed in my previous life I worked for an engineering firm that served the development community. We did the engineering for your large scale land subdivision projects. The lending environment is much different here. It's been about 10 years since I did that work. At that time it required cash to buy the land outright, then you took the project through entitlement and sold the lots to builders. The process, depending on the jurisdiction, took anywhere from 18 months on up. Very risky proposition. There was some lending on land but in the last downturn, the banks got really burned so I'm not sure who is lending on land for development now. I'm sure someone is though. The other approach is to put the land under contract, and then get it entitled and round up buyers so that when you close, your bank account gets fat. The entitlement process can be costly so it takes money to fund that process. In addition, we have the added overlay of having to provide water. It is expensive in most cases. The biggest challenge is that each and every municipality or county is different. So what works for one parcel wouldn't work across the street.

There are commercial brokers that specialize in finding land for development. Find a few of those in your area and pick their brains. They can explain the ins and outs of lending on land and development of the land for the area they know.