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An Investment Analysis with the Property
Owner Managing the Entitlement Process
Combined with a Listing Agreement
improves marketability with added value.
(Prepared by Tony Graff,
Retired
City Manager,
1/6/07)
The entitlement process is for the
property owner to petition/apply to
the municipality for annexation and
zoning with a concept land use as the
entitlement exhibit. The due diligence
cost runs around $1,000 to $1,400 per
acre. Furthermore, combining the
entitlement process with a listing
agreement will ensure a full package
service for the landowner.
Example is 240 acre site (based on 2.0
DU/Acre = 480 units (this will assist
with the calculation for engineering and
land planning cost) $240,000 to
$336,000. The bank will loan up to
50% loan to value of the land and at
closing the bank will be paid similar to
a balloon payment 5 - 7 yr balloon term.
The funds can be drawn upon as needed so
interest is leveraged over time. The
added value to the property with
entitlement is between 15% - 20% (gross)
depended on the location and market
conditions.
The marketability improves in the eyes of the developers because
they know the due diligence period has
been completed. During the approval
process the developer may
submit the mass grading application.
The next step is the final
plat process which is more manageable
and completed in a timely manner.
This process gives the
developer a comfort range on the known
tangibles and more confidence,
plus the farm family/property owners
usually have a history as long standing
citizens who are recognized
within the community, placing a familiar
face, like a neighbor, throughout the
entitlement process working with staff
and elected officials.
There are minor risks involved however,
the risk out way with the property
owner receiving control and the added
value to their property with a potential
net gain of 10% - 15%.
I
know a lot of the land contracts over
time provide for an escalation clause,
but I believe time has value and
managing the land deal are all positives
for the right type of land owner who was
at the mercy of the developer,
City/Village process or the scope of the
contract they made 2 years ago. I
believe managing time offers a better
scenario for the 1031 exchange
process. Another advantage to
developers is the downsizing of land
acquisition staff and the unexpected
market conditions reduce their risks
with a known commodity of entitlement.
Here is an investment analysis sample:
240 acre Farm with the current raw
land sale price $30,000 x 240 =
$7,200,000
Additional per acre cost of $1000 -
$1400 = $240,000 - $336,000
Added (gross) value is 15% - 20% =
$34,500 - $36,000 A/C
240 x $34,400 = $8,256,000 (added value
of $1,056,000 - $288,000 entitlement
cost (average) = $768,000 net gain of
10%)
240 x $36,000 = $8,640,000 (added value
of $1,440,000 - $288,000 entitlement
cost (average) = $1,152,000 net gain of
15%)
The investment analysis is conservative addressing the
investment net gain. I believe the net gain could be
between 20% - 30%. Any questions or if you need to set up a
meeting to discuss this process contact me at
630-688-9217 or
graffmd@aol.com.
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