Residential Land Development Financing
I am fairly new to real estate investing and have only done one rehab so far. Recently I recieved a pocket listing from my realtor on a plot of land approved for 120 houses. It is located near a newer development in Ohio within city limits, and is available at a Very Very good price. I am trying to assign the contract but all local developers are too busy at this point. How can I possibly go about funding this project on my own? Can I use the equity in the property and need little or no downpayment if possible? This is raw land with water and sewage to the land. I am interested in even doing the streets and selling off the lots. Any help will be greatly appreciated. Thanks![ Edited by buster66 on Date 02/18/2005 ]
living in the metro ATL area myself I can tell you what you probably already know...the in-town condo market is hot but also VERY full right now. There are condos and condo conversions going up just about everywhere you look and thus competition is fierce and you will be going up against some big names with big money.
Not to discourage you but a 50 condo deal is pretty ambitious if you have never developed anything before. Creating the condo association itself is an involved process.
If you have never done any development work I would recommend starting off with something much smaller in scale. Who knows though, you all may know what you are doing.
FYI though...even the best atty's in ATL, and I work with a lot of them, are not going to be able to guide you through the purchase process better than you need to be able to do b/c they do not fully understand your goals, etc. A high quality broker that specializes in development deals would be more valuable through the purchase process.
Good luck.
As woodsong said, it's not the function of the attorney to advise you on business decisions. Rather, the value of the attorney may be in representing you as you go through the municipal approval processes.
This is a critical part of development--developing meaning making some change to the property that will increase its value, not necessarily sticking a shovel in the ground.--a nd a very challenging one.
Thank you for your replies so far. For the approvals process, I know there are individuals who will assist with that. Does anyone know of any good companies in the Atlanta area for helping beginners? With regard to the condo association, I was thinking that a property management firm would step in and take control once the project has been built. Would BOMA be a good resource for that?
As far as the size of the project, I agree that 50 units is a huge undertaking for a first project. I'm thinking of scaling back to a community of 30 units, and having the amenities (pool and other common features) of the local builders. The larger companies like Post Properties and John Wieland build much larger developments, but they're not for everyone. I'm sure if we do go through with it, selling 30 units before construction is complete with the right broker shouldn't be a difficult undertaking.
I don't know your market but I think that your goal to presell 100% of the units is flawed.
In my market we plan on a 2-3 year sellout on an average sized development and longer on something large.
I am new to the development world too but would highly recommend getting some more education in real estate.
If you don't know what you're doing--why would the banks loan you money?
Great job on the first step. Let us know how it goes and keep us posted!
Quote:
On 2004-10-21 13:36, Battery15 wrote:
Thank you for your replies so far. For the approvals process, I know there are individuals who will assist with that. Does anyone know of any good companies in the Atlanta area for helping beginners? With regard to the condo association, I was thinking that a property management firm would step in and take control once the project has been built. Would BOMA be a good resource for that?
As far as the size of the project, I agree that 50 units is a huge undertaking for a first project. I'm thinking of scaling back to a community of 30 units, and having the amenities (pool and other common features) of the local builders. The larger companies like Post Properties and John Wieland build much larger developments, but they're not for everyone. I'm sure if we do go through with it, selling 30 units before construction is complete with the right broker shouldn't be a difficult undertaking.
Out of curiousity, have you ever built a house at all or done any land development in the past? What do you mean by you have studied real estate?? I don't ask those questions just to be a pain but knowing the answers to those items will help me understand where you are coming from and what you know.
What part of town are we talking here? If you are looking for the north side of town I can tell you who to use for zoning. I will tell you though that no zoning atty will put into it what you can personally. THe only reason to use an atty is if you have never done a zoning and don't know how to navigate the process. I personally don't use any of the zoning atty's and do my own rezonings and have not lost a case yet. But there are a few good ones out there.
Preselling 30 units in our market is not going to happen unless you want to wait 12-14 months. By then your original presells will bail and the cycle will begin. You will not presell 30 units and if you go into the bank telling them you will they will not want to loan you money right then and there.
Seriously, development is fun but I would seriously encourage you to not start with condos. Doing any type of multi-family is complicated and you will be much happier if you stay with good ol' fee simple detached homes. Even then you will have a lot to go through and learn. I assure you, you really do not want to start with condos. The start up costs are huge.
I can ask you three questions right now and if you do not know the answer automatically I can without a doubt tell you that you are not ready for this project, YET. Doesn't mean you won't be in due time but maybe not right now.
Ok. Here are three simple questions:
1) What is an invert?
2) WHat does it mean when your engineer asks you, "Do you want this to be 29' from BOC to BOC and are we doing an inverted crown with inlets or do you want single wings?
3) What are the common elements and if I buy a condo from you can I come back a year later and change the style of the siding you put on? Why or why not?
If you don't know the answers it is not a big deal. We can teach you what it all means. But it will also tell you that you are not ready to build and develop 30 condos in the atlanta market right now. YOu never know what will happen down the road so don't get discouraged. This is a site to encourage you not discourage you.
Thanks for asking those questions. I have only worked for a commercial builder (Centex), and want to look for a job upon graduation with a developer. That is all, but my college studies have been with a focus on building construction and real estate. Regarding the financing, if we give a plan to this group of investors backed by a bank in China, we can get the money for sum necessary. I really want to get to know as much possible before getting involved with a project. I was not aware that even with a 30 unit project, 2-3 yrs for resale should be planned for selling out, I was thinking of a lesser time frame, but have not talked to brokers regarding this.
With regard to the three questions:
1) Is the invert you are referring to an invert elevation that applies to an underground storm drain, where the invert elevation is the difference between the sewer pipe and the street.
2) I am not sure of the b.o.c terminology.
3) Common elements, do you mean conveniences and ammenitites? Things like a gym, bar, pool, laundry within each room, etc, but these are optional. No you may not change the exterior appearance, unless it is a very minor change that does not affect the architectural design and has been approved of the association.
I look forward to gaining as much knowledge and input as I can. Additionally, I would be very appreciative if anybody has any leads to a residential/light commercial developer within Atlanta...I am really only aware of the larger companies, but am looking for something smaller. TIA
Quote:
On 2004-10-21 19:04, Battery15 wrote:
Thanks for asking those questions. I have only worked for a commercial builder (Centex), and want to look for a job upon graduation with a developer. That is all, but my college studies have been with a focus on building construction and real estate. Regarding the financing, if we give a plan to this group of investors backed by a bank in China, we can get the money for sum necessary. I really want to get to know as much possible before getting involved with a project. I was not aware that even with a 30 unit project, 2-3 yrs for resale should be planned for selling out, I was thinking of a lesser time frame, but have not talked to brokers regarding this.
With regard to the three questions:
1) Is the invert you are referring to an invert elevation that applies to an underground storm drain, where the invert elevation is the difference between the sewer pipe and the street.
2) I am not sure of the b.o.c terminology.
3) Common elements, do you mean conveniences and ammenitites? Things like a gym, bar, pool, laundry within each room, etc, but these are optional. No you may not change the exterior appearance, unless it is a very minor change that does not affect the architectural design and has been approved of the association.
I look forward to gaining as much knowledge and input as I can. Additionally, I would be very appreciative if anybody has any leads to a residential/light commercial developer within Atlanta...I am really only aware of the larger companies, but am looking for something smaller. TIA
Battery,
You will probably find this thread somewhat helpful:
http://comm.thecreativeinvestor.com/ViewTopic26709-26-100.html
Did you work for centex here in the atlanta market? I know a few of the folks over there, or at least knew them at one time. They have had some staff changes lately due to their restructuring. Some of the guys I knew had been there 10+ years and they left recently. One thing is for sure, centex is pretty darn big!
I think getting a job with a developer after college is a great idea. It will give you the opportunity to learn the trade bit by bit without being on the financial hook for everything. You will want to find a small firm that will give you the opportunity to learn a lof of the different components to development....from acquisition to financing to the nuts and bolts of development.
You did pretty good on the questions but for some clarification:
1) You are correct that an invert is related to storm or sanitary sewer pipes. Note that it is applicable to either sanitary or storm sewer. WHile there is obviously a relationship between the invert elevation and finished grade elevation, an invert elevation is simply that...the depth of the bottom of the pipe, typically measured at the manholes and/or junction boxes.
2) B.O.C.= Back of Curb. It is the standard term used to measure street width. BOC dimensions will obviously change depending on what size and style of curb you are using. Drop inlets and single wings are types of storm catch basins. Single wings are the type you typically see in subdivisions...where they have the concrete top angling into the area where the sidewalk would go. They will have a manhole ring and cover on them as well for access to the storm structure. A drop inlet does not have the concrete top and will just have an iron grate and frame. You can also have a hooded grate and frame whereby the grate and frame sits in the gutter area next to the asphalt and the hooded part replaces the curb section to increase water flow.
Streets can be done such that they are crowned to force water to run to the edge of pavemnt and curb and gutter, or they can have an inverted crown with drop inlets installed in the center ofthe street.
3) The common elements are the parts of the condo association that are owned in common between all owners. Condo owners typically only own the interior air space of their units and do not own the exterior of their unit. Thus, no change can be done to the exterior of the structure by an individual b/c they technically do not own it outright...they haev a divided interest in the common elements along with all other association members. Altering the common elements requires a motion and approval by the association. Common elements can and will include exterior walls, roof, any interal hallways that are used to service the units, parking, landscaping, clubhouse, etc. etc.
"Regarding the financing, if we give a plan to this group of investors backed by a bank in China, we can get the money for sum necessary. "
I do hope that a plan is ALL you give them. If they ask for ANY upfront fee, RUN don't walk away. I'm sorry, but your financing sounds suspect, given your experience level. There's a lot of scammers out there that talk a big talk, will take your money, and give you a lot of excuses and delays. They NEVER come thru with the funding.
Bijan....lol!
HR Parks....I have no idea what this financing company really does, and it's quite obvious that from my description it sounds awkward/shady. We do know someone building a $10M+ project using them, but we have not gotten into details with him yet. And I would not be putting in any of my own money or 3rd party investors' money because the idea was that it should be 100% financing with no closing costs....we'll see how true it turns out to be. However, there are many options for financing.
Quote:
On 2004-10-22 14:59, Battery15 wrote:
Do you know of a medium sized developer of residential or commercial properties in this area? Through school I have only been able to find large residential builders who will only start me off in construction, and one smaller residential builder/developer who could start me off where I'd like, but hasn't responded to some correspondence...but will keep trying. Anything you could recommend, I would be grateful.
Thanks,
Brad
<font size=-1>[ Edited by Battery15 on Date 10/22/2004 ]</font>
Where do you want to start off, or rather, what do you want to be doing as you start off? When you worked for centex did you do verticle construction (i.e. houses, etc.) or horizontal construction (streets, sewer, etc.)? If you have not ever done any horizontal construction it may prove difficult to find a company that will start you at the top of the ladder due to the responsibility involved. Obviously to get a job with a developer you are going to have to convince them that they need you for some reason or another...a valuable skill that you can provide that they are in need of. I know several small to medium developers but to be honest most are adequately staffed at the moment. Being in the same town I wish I could help you out with this!
Also, what specifically are you studying at tech...construction management, engineering, design?? Have you tried hanging out at the local home builder's association meetings or at the housing institute over in tucker? If not that is probably going to be your best bet to getting into the type of job you are looking for.
Good luck and keep us posted. If you haev any other questions don't hesitate to ask.
One more thought...if you are serious about getting into development and have not already done so, you may want to sign up via the Greater Atlanta Home Builders Association to take the NPDES certificiation class. It is a one day event (and a boring day at that), but it is required to be certified if developing any site in the state of GA with a disturbed land area of 1 acre or more. Having this certification will be needed once you get in the field.
Here is a link with the basic facts regarding the NPDES regulations for the state of GA:
http://www.ganet.org/dnr/environ/techguide_files/wpb/stormwtr.pdf
Thanks for that guide to the Storm Water Permit. What are other typical permits that must be pulled for environmental regulation when a development project is underway?
Additionally, if you don't mind, what are your thoughts about the South Florida commercial development market? I know that companies like Stiles have done very well there, but the office development market is very erratic and I've heard has high vacany rates. Would it be recommended that I stick to finding a job with a company based in Atlanta? Thanks for your thoughts.
Quote:
On 2004-10-24 21:43, Battery15 wrote:
Thanks for that guide to the Storm Water Permit. What are other typical permits that must be pulled for environmental regulation when a development project is underway?
Additionally, if you don't mind, what are your thoughts about the South Florida commercial development market? I know that companies like Stiles have done very well there, but the office development market is very erratic and I've heard has high vacany rates. Would it be recommended that I stick to finding a job with a company based in Atlanta? Thanks for your thoughts.
If you are dealing with a property that involves working within the state madated stream buffer (25'), you will have to pull permits from the Corps of Engineers. It can also be costly whereby you have to mitigate stream encroachments if you disturb more than 200' of stream buffers. They have determined in the past that in-stream detention can constitute buffer disturbance up to the 100 yr. flood elevation. Also, if you are doing any work at all (except for road crossings) within a state stream buffer, you have to apply to the GA EPD for a variance. Unlike other governmental permit applications there is NO deadline on how long they can take to review your variance application. It can hold you up big time so we just make sure that we do not work in the stream buffer for anything except road crossings.
In regards to FL, I will be honest...I don't really keep up to date on the development market in that area so I cannot say one way or the other. From what i hear it is booming but that is all second hand info. One thing I can tell you is that the ATL residential market is booming. The commercial market here has been pretty poor for the last few years though it is showing some signs of picking back up. Vacancy rates have been very high lately.
woodsong, if you dont mind my asking. do you see the development all the way to the end? do you hire a general contractor to build or do you have your own contracting company? it seems like youve done buisness in that area for so long that you probably know all the subs.
we do both the horizontal development and the verticle construction. I used to be involved in the verticle work (i.e. homes), but now I just do the acquisition and land development.
I'd like to encourage you with your ambitious plans. Everyone has to start somewhere.
I suggest that you tie-up the land and perform your due-diligence. If you think you really have a project I'd suggest that you partner with an established developer on your first one.
I think you'd learn a tremendous amout by partnering with someone on your first substantial project, in addition to sharing in the profits.
Hope it turns out well for you.
I have similar ambitions to you battery, im a soph. at Morehouse in Atlanta and along with a few partners, want to get into commerical real estate. My intrest are more toward converting abandoned warehouses to lofts and renting them out. maybe we can form an alliance and help each other since we both have ambitious goals in similar circumstances.
thany you woodsong for your invaluable info - is their a way i can get in contact with you through email
**Please See My Profile** if your interested
[ Edited by Machuse on Date 12/31/2004 ]
Woodsong-
I read through this thread and your comment about encouragement vs. discouragement.
Brad, go for it. You work on your strengths and experience and get advisors to support your where you need it.
My first project as a developer was a 56 unit complex started three years ago. I now have over $250 million in condo projects on the table.
When I read woodsongs post asking you questions about B.O.C. etc I laughed.
I had not idea what B.O.C. was until I read this thread.
A developer is like a movie producer. We assemble the talent, the money, the sales. We motivate, we are visionaries, we work againtst all odds.
We are politicians, lawyers, builders, salesmen.
Fifty units is NOT too big for a start. 100% sell out is NOT unrealistic. ( I did both)
Good luck.
Gregg Fous
Brixton Development
I was looking through previous posts - I thought I had written one about the steps in developing. There are some good threads and suggest you search through them.
ie:
You have already taken some of the first steps in developing. You have identified the property. Normally, the process starts with the land identified, the market identified, or the product identified.
So step one:
Identify the land, the market, and the product. If you have one you need to get the other two pretty clear. This means a market study (formal or informal) Once you have all three you are in good shape
Now assuming you know you want to build/develop, where you want to build and develop it, and who you want to do it for…you need to determine if the plan is economically feasible.
A developer is like a movie producer – we assemble all the talent and get the best of what they have to offer.
I will list some of these talents for you – they are not used in chronological order but in most cases you need all their efforts yesterday.
• Market Research Firm – what will your absorption be and for what product
• Engineering firm – can give you due diligence engineering estimates for infrastructure and site prep
• Title Company – prices and comps in areas
• Architect – Your product and some cost estimates
• Builder- help with design and costs
• Politician – zoning and planning help, RPD approvals etc.
• Advertising agency – help in defining your customer
• Realtor – help in selling and defining prices and customers
• Decorators – color selection, product selection
• Attorney- contracts, hidden bodies, etc
• Banks- the money
Here's a thread that contains a lot of useful information:
http://www.thecreativeinvestor.com/commercial/ViewTopic26709-26-100.html
Nancy
How many years will it take before the city brings in public sewer? Without it, development potential is severely reduced. Do you really want to close with the seller on land that essentially can't be developed until public sewer comes in?
What are the zoning requirements--min. lot size, uses permitted, etc? What would the new homes sell for on the lots?
Why not make your purchase of the seller's land contingent on subdivision and being able to get a building permit (ie, availability of public sewer) rather than buy a few acres at a time?
Nancy, made a good point. I hope your not talking about Suffolk, (from Norfolk). Now I do have to say that Im in Charlote and you would be surprised as to how many houses that are within the city limits that does not have city water and sewyer.