SURVIVAL GUIDE FOR LANDHOLDERS: 10 KEYS TO SUCCESS
By Tom Dallape
Principal of The Hoffman Company
When the nation’s real-estate market began to hit rough weather in early 2006, owners of large land parcels were slowly transformed from captains of wealth to castaways at sea. Choice properties that had been poised for lucrative development became like so many deserted islands — where shipwrecked investors or lenders were stranded with little to think about but sunken costs and waterlogged building plans.
But there is hope for a rescue: Buyers are now beginning to appear on the horizon – even if initially returning to the market to capitalize on the distress. Sellers are more likely to be equity and construction lenders rather than builders and developers. At this time last year, any large site coming to market would be lucky to draw one or two purchase offers. Today it is not unusual to attract a dozen offers, as long as the site is priced to market and has been kept in good condition – both physically and on paper.
If you happen to be one of those “stranded” landowners, how can you make sure you stay fit to survive until the rescue ship comes? Here are 10 ways to start.
- Get over the loss. Determine the correct price of your land for the current market conditions. Do not rely on outdated appraisals. Depending on location, prices in the lot market have declined anywhere from 40 percent to 65 percent. If an appraisal is more than six months old, lenders can’t get an accurate idea of what the asset is worth in today’s land market.
- Fish hard for buyers. Expand the “potential-buyer” profile beyond traditional users. Contact adjoining land owners or past owners to gauge their interest. Scout for foreign investors and potential alternative users, such as an industrial developer for a residential site.
- Salvage what you have. Preserve existing entitlements with extended tentative maps. The previous developer may have spent in excess of $500,000 on entitlement and engineering to receive development approvals. Do not let that time and money go to waste. Land without such approvals is worth considerably less.
- Send out an S.O.S. Hire an experienced firm to properly package and market your site. Find one with experience navigating a previous market correction. Tap the knowledge of past consultants who have worked on the site to understand and preserve work already completed on the project.
- Explore the entire island. Compile as much history on the site as possible, particularly development fees that have been paid. Those stay with the land and add value. If you are unaware of past fees paid, you may not get credit for them when you sell the land.
- Be inventive. Look for uses beyond existing zoning or entitlements. Many residential sites that are located near transportation corridors, for example, are being reevaluated as suitable for industrial, big-box distribution sites.
- Stay in shape. Keep the site free of illegal dumping, vegetation growth and erosion. Prevent additional species or wetlands issues by properly managing the site. In past downturns, endangered species have often been found on graded sites that had not been properly maintained.
- Keep your eyes on the horizon. Stay on top of changes in offsite conditions that may affect your project’s development potential. Stay tuned politically to fight any new fees that may burden the site. Keep an eye on any joint infrastructure agreements that affect the site. If a builder does not move forward with an adjacent project, for instance, the scope of your offsite work may go up.
- Take a load off your feet. Try to get any existing subdivision improvement bonds reduced if site work has been completed. Finding buyers who have the ability to replace these bonds is also key to selling a partially developed site.
- Be willing to barter. Allow financing or flexible terms. Sellers who can provide some financing in today’s tight credit market will greatly increase their site’s value.
Tom Dallape is a principal of The Hoffman Company, a leading land brokerage firm in Southern California for the past 30 years. Its brokers have closed more than 1,100 real estate transactions for a total $4 billion since the company’s inception in 1978 and have booked an average of more than $500 million annually over the past five years. The Hoffman Company represents land owners of all property types, including residential, multi-family, commercial and industrial sites. For more information, call 949-553-2020 or visit www.hoffmanland.com.
