Ideas for land use due to possible rezone in Seattle

[Rao V.]

Hi Guys,

I wanted to check in this forum for some ideas for a project that I and my next door neighbor is contemplating. Me and my next door neighbor owns one SFH each. so together we own 2 lots and land is roughly 14.000 sqft.

These lots are going to be rezoned from SFH to MUR35 in coming years which means we can build mixed use commercial/residential upto 4 stories. I cannot disclose the address now but to give you an idea the lots are in shoreline, Seattle area and rezoning is coming as part of shoreline train project. These lots can have 1st floor as commercial and next 3 floors as residential.

The lots being on a busy street and there are about 100 feet facing street I think the first floor could be just commercial. 

So I want to ask experienced professional here that what are possibilities and how to go about it. 

One way I think is we signup with a developer and we provide land and they invest in construction/material and then we split the profit.

Also if there is somebody in Seattle area who would like to partner and discuss feel free to pm me.

[Ryland Taniguchi]

MUR-35 allows for 3 stories high and up to 35-feet. 14,000 sq feet is a lot of space for a development like this. 

I am building 50-units (average square feet around 1400 per unit) on 6000 sq ft in Seattle and it would be 4-stories and maybe 3-stories down for a concrete garage. Cost to build is $10.3 million. At a 6% cap, the projects will net $8.8 million equity and sell around $23.6 million. At a 3.9% cap which is a current cap rate in the area in central seattle that I am building, it would be worth $31 million and could be around $17 million in equity. We are doing the survey and site plans now and determining whether we can build 100-units (average square foot behind 550 sq ft). 

Here are a couple of lessons from my project that could apply to your future project. 

1) If you build green, you can greatly increase the density on this type of project.

2) It costs a lot of money to build the concrete garage.

3) It won't be enough most likely (unless you a very very strong borrower) to just contribute the land. If the contribution loan is over $7 million, expect the possibility that you will have to come in with "skin in the game" cold hard cash. On my $10.3 million, I expect to have to come in with $1 million cash with half in "soft costs" and the other half in cash. In my deal, I got the land for free as part of a JV. Land is worth around $4.5 million and it is free and clear.

If you don't have this kind of cash, then that will need to be negotiated with a developer partner.

4) Looking at a full design review. If you have any trees at the property, expect lots of problems during public hearings from environmentalists. You maybe building around the trees.

5) Holding costs for a project this big can exceed $100,000 per month. You will want to get the lowest interest that you can get.

6) This is probably the worse time to build this sort of project. The commercial market is at its peak and it can only get worse. But maybe by the time you start construction (sounds like several years out), maybe it would be a good time.

7) Expect 5-years ramp up period before your cash flow stabilizes. Can take 10-years to be fully performing.

8) Some ideas are building condos rather than apartments (if allows), sell the condos and keep the commercial free and clear. Problem on a multifamily loan is usually it is a 15-year balloon amortized over 30-years and the cash flow takes up to 10-years to become fully performing. So you don't have all the cash flow to pay down the debt.

In 15-years, you would be hoping that interest rates were not 20% like 3 decades ago.

9) If you build less than 4-stories, you probably don't need steel framing. Probably better if this is your first major project.