assembling land packages for developers

[TangoWhiskey]

A partner and I have a waterfront deal under contract that includes an option on a neighbouring piece of waterfront, both zoned commercial or multi fam. We are considering approaching neighbours to see if we could option their land to assemble a large waterfront piece to take to developers. Does anybody have any experience with this? What kind of margins and efficiencies of scale (ie size of project $$$ value) do developers need to see in a project to make it worth their while?



I would guess the issues are trying to minimize cash out of pocket to get the rights to the land before selling to the developer as this is inherently speculative. Also the fact that land is typically an "alligator" in that it eats money without producing a return would be the other major risk factor. Any others?

 

[housingrental]

It depends on the area.



Often a lot of value is in a change in zoning, change in incentives offered - if not waiting XX years.



In your area - with lots of land - and zoning already allowing high density zoning - Before proceeding you should have a clear picture of what you are going to do with the property / who the end purchaser is / it's worth to them. You should be able to answer this:



What is the value add you that you're assembly creates that would allow you to profit on resale?

 

[RedlineBrett]

Really great insight by Adam here.



Packaging a bunch of land together only makes sense if the end project looks better due to the economies of scale.



In this market space though if the land/zoning/ESA is really choice a developer would have come knocking already. There are likely other hurdles that will need to be overcome, and these can take years and a lot of $ to get through.



There is money to be made here as lots of developers don't want to do this work, and if they are a high volume developer that pushes out a consistent type of product there is value in not having to wade through a lot of red tape.



Tough to grasp what your margins look like if you can't put yourself in the developer's shoes - so know how much it will cost them to build out, and how much they can exit for.



If you're looking for a quick buck I'd get as long an option as you can negotiate and then go to a broker that specializes in this kind of stuff. They'll be able to tell you right away if you have a saleable product, and if not what you must do to be a promising acquisition target.

 

[Thomas Beyer]

work backwards from end user value, i.e. retail lots or condos.



Too many variables to give a meaningful answer.



Is there a demand for recreational condos or cabins in that area ? I thought that market is very weak ?



Without deep knowledge of local conditions it is likely NOT worth your while !

 

[TangoWhiskey]

Thanks again for all the informed and valuable inputs. The thing I find so hard to quantify in this deal is the waterfront element. I never expected to get an oceanfront property plus jetty plus 6 townhouses for so cheap - 750K! So I ask you guys as seasoned investors: this is awesome ocean front property with a great view of Halifax, and after renos we expect to add a lot of value to it. But how much does the oceanfrontage REALLY add in value - on the one hand, it will show in (possibly) higher rents, but it may not, or not as much as we think; and on the other hand, even if we don't immediately find increased rents, ocean front with a view of Halifax is really rare and must go up in the future.



I find this a hard to quantify value but which must add value due to its rarity and appeal. Do people pay much attention to factors beyond the numbers?



For context, this deal is a little ways out of Halifax in a small community that has been swallowed up into the regional municipality, one that still has a real nautical element but which is mostly disappearing into an aging populace and people commuting to the big city. But only about 3 km away is a big air force base where there are tons of great tenants. We're thinking of targeting the junior officer profile looking for a tiny commute with big WOW factor from the waterfront windows ... helps the romance along.



Thoughts?

 

[RedlineBrett]

[quote user=TangoWhiskey]I find this a hard to quantify value but which must add value due to its rarity and appeal. Do people pay much attention to factors beyond the numbers?


Renters seldom do. The people who pay the big money for vacation property and value the 'romance' are not going to rent, they're going to buy. It doesn't sound to me like your land is ideal for an income based investment, and that your exit would either be the condominiumization of the townhouses or parceling up and selling as a redevelopment opportunity.

 

[Thomas Beyer]

What's selling nearby for what ?



Renting oceanfront will get you some, but only a minor premium.



Best to sell condos or townhouses to people who love the dream, perhaps to Germans or British folks, where ocean front is rare and thus, expensive.



Many NS towns, like Lunenburg, are past their former glory and quite depressed actually, so no real rental nor vacation property towns.



Research real demand and sales in similar locations elsewhere.