Design or Maximizing Profit – The Ultimate Conflict

Posted on May 24, 2011 by admin| Leave a comment

As the economy starts to improve and the housing market rebounds, the need for more subdivisions will increase. It’s true that the “finished lot” inventory is still quite substantial, but what happens after that? One possible answer is that there will be demand for entitled subdivisions to be brought to fruition. There are many approved projects in the Phoenix Metropolitan area, but with a changing market and an expectation of a more “sustainable” environment. Will the better subdivision design of tomorrow conquer the quest of profit maximization for the developer/homebuilder?

Let’s look at one example:

A new property owner has just bought a final platted property. The lots are a little big for today’s market, so the Owner decides to hold the lots and wait for the market to improve.  As time goes by the Owner realizes that he has to adjust his plat, because the homebuilder/home buyer market doesn’t want to live in a subdivision with very little open space and even less amenities. He negotiates with the City/County and is able to re-adjust his plat to include more meaningful open spaces (not just retention basins), however, in so doing, he loses lots, and in turn potential profit.

The Dilemma?

“Is it worth losing lots and potential profits to make the subdivision a better long term living environment or should the lots remain land banked until the market has reached equilibrium and then sell.”

Obviously this issue is of critical concern to the property owner, a good option would be to have an experienced development professional run a series of financial pro- forma’s for each scenario. One scenario would add the carrying costs for the expected hold time of the lots. Another would have the design/re-plat costs included. There might not be a huge difference in the costs between the two. However, If the plat is redesigned with better community spaces it will, in a stable market, fetch a higher sales price, because the end user will pay more for meaningful open spaces. In addition, homebuilders typically charge a premium for locating next to open spaces  and the property owner may be able to recover some of his lost profits by negotiating a better sales price with the homebuilder.

For further information call (602)-330-8470 Gary Lane, AICP at LBG Development we have “unmatched experience in every facet of development.”  or write your questions and comments to info@lbgdevelopment.com.

www.lbgdevelopment.com

O – (480)-474-4385 I MB – (602)-330-8470 I  F – (480)-814-0628

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Posted in LBG Development, Subdivisions

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To Zone or Not to Zone-That Is the Question

Posted on March 9, 2011 by admin| Leave a comment

This question has been asked since the enabling statutes were first passed in the State. The answer to the question is not so straightforward and is dependent upon a number of variables such as (a) the timing of the real estate market, (b) the true value of the land, (c) the population demographics in the immediate and surrounding areas, and (d) the job market.

Other important considerations include what is represented in the City or County’s General Plan, the housing market and what is the citizen’s climate for change in the area to be rezoned.

Let’s look at an example:

Developer X has bought a piece of property at an auction. The property is located in an area with existing housing surrounding it. In his due diligence he found that the General Plan had designated the property for Heavy Industrial uses. It was an older designation developed in the 1980’s. Due to various factors the property had never been developed. What should he do? He knows that others surrounding him have had successful zoning changes to residential uses, but in this economic climate he doesn’t think the City would support a residential zoning change. The questions that he needs to answer are as follows:

“If I do nothing and wait for the residential market to improve, will the City support my General Plan and Zoning amendment? If I push forward and reduce the intensity of the Industrial uses will the City support my application as I may be bringing jobs to the City?” How long will the City keep my entitlements in place and is it worth the hundreds and thousands of dollars in entitlement investment if there is no market at the end of the approval process?”

Obviously these issues are all very important and relevant questions. The key lies in the attitude of the City, a good option would be to hire an entitlement professional that has good relationships with the decision makers in the City. Before Developer X submits his actual application he may want to submit the project as an item for a Council worksession. He will then get some idea of how the Council and surrounding neighbors will react to the above proposal. If the Developer gets positive feedback then he might be encouraged to move forward and spend the money, if not, he hasn’t wasted too much money and should probably wait until the political and economic climate has changed.

For further information call (602)-330-8470 Gary Lane, AICP at LBG Development we have “unmatched experience in every facet of development.”  or write your questions and comments to info@lbgdevelopment.com.

www.lbgdevelopment.com

O – (480)-474-4385 I MB – (602)-330-8470 I  F – (480)-814-0628

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How Hard is it to Change my Development Agreement?

Posted on January 26, 2011 by admin| Leave a comment

“How hard is it to change my development agreement?

This is a complex question with many answers depending on the history of the property, the municipal or county entity, the willingness to revisit  the agreement provisions by the said entities, and what provisions, if any, have already been satisfied.

Let’s look at one example:

A new property owner has just bought a piece of property. In his due diligence the new owner discovered that the property has expired plats on it, and has a development agreement that was approved 4 years ago with 6 years left in its current term. There are also various time sensitive payments that are due from the property owner, but due to the economy he realizes that he is going to have to hold the property for a while and he wants to delay them. The question he is faced with is:

“Will the City work with me to allow me to amend some of the provisions in the development agreement that are time sensitive?”

Obviously this issue and issues like this are of critical concern to the property owner, a good option would be to hire an attorney who negotiated the terms of the agreement in the first place, or an entitlement practitioner. Typically, a good zoning attorney or a good entitlement practitioner, with substantial experience in development agreements, who is familiar with the particular City or County will have established relationships and be able to advocate the property owner’s position successfully. It must be noted that an amendment of the agreement is not always going to be approved by either staff or the City Council or County Commission, but if the new owner can still show a win-win for both the municipal or county entity and the owner. It is likely the City (or County) will work with the new owner to create some type of relief. As to what form that will take that will be up to the Parties.

For further information call (602)-330-8470 Gary Lane, AICP at LBG Development we have “unmatched experience in every facet of development.”  or write your questions and comments to info@lbgdevelopment.com.

www.lbgdevelopment.com

O – (480)-474-4385 I MB – (602)-330-8470 I  F – (480)-814-0628

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Season’s Greetings from LBG Development

Posted on December 21, 2010 by admin| 1,024 Comments

Wishing you a Happy Holiday Season and a Peaceful Prosperous and Healthy New Year.

We look forward to seeing you next year!

For further information call (602)-330-8470 Gary Lane, AICP at LBG Development we have “unmatched experience in every facet of development.”  or write your questions and comments to info@lbgdevelopment.com.

www.lbgdevelopment.com

O – (480)-474-4385 I MB – (602)-330-8470 I  F – (480)-814-0628

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Building Your Knowledge Today for a Better Tomorrow

Posted on November 19, 2010 by admin| 1,614 Comments

Assurances-Lowering the Requirements

One of the most frequently asked questions by the development community to the City is: “What kind of guarantee do I need to assure the project improvements?” Most City ordinances require either a bond for the value of the said project improvements or a letter of credit from a financial institution. The question is “How do I lower the municipal requirements and the burden on the developer and the project?” In this economy lending institutions are not typically lending money for improvements, so how does a developer move forward with a project and meet the necessary requirements?

Let’s look at an example:

A property owner has just had his engineer complete construction drawings and has the construction estimates approved by the Municipal or County entity. The developer has tried getting financing or a letter of credit from a series of financial institutions but cannot get what is needed.  The question he then asks is “If the Municipal or County entity needs an assurance that I am going to build the infrastructure why don’t I work with them to provide an alternative?” What alternative(s) might be available?

One potential alternative that has become popular due to the lack of financial institution participation is the Third Party Trust Agreement. The basic concept behind this alternative is that upon approval of the final plat the government entity puts the approved lots into a 3rd party trust. These lots remain in the Trust and are not released to any entity until the developer/homebuilder/owner has had the infrastructure constructed  and approved by the Municipal or County entity, at which time the lots are released and ready for home construction.

It must be noted that an amendment of the agreement is not always going to be approved by either staff or the City Council or County Commission, but if the new owner can still show a win-win for both the municipal or county entity and the owner. It is likely the City (or County) will work with the new owner to create some type of relief as to what form that will take that will be up to the Parties.

For further information call (602)-330-8470 Gary Lane, AICP at LBG Development we have “unmatched experience in every facet of development.”  Or write your questions and comments to info@lbgdevelopment.com.

www.lbgdevelopment.com

Office – (480)-474-4385
Mobile – (602)-330-8470
Fax – (480)-814-0628

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Posted in Assurances, LBG Development

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Do I Navigate through the City Entitlement Process?

Posted on October 19, 2010 by admin| 20,988 Comments

In this time of economic uncertainty, when is it time to start or continue through the City entitlement process?

The answer to the question is not so straightforward and is dependent upon a number of variables such as (a) the timing of the real estate market, (b) the true value of the land, (c) whether or not there is debt on the property, (d) the patience level of the lender, (e) the amount of debt, and (f) when the loan matures.

Let’s examine one example:

A property owner has a zoning category that doesn’t have a lot of value compared to the amount of debt on the property.  If the owner does nothing it is highly unlikely anyone will be interested in the property because the zoning is too restrictive for today’s marketplace.  The result of this could be that no sales or purchaser/tenant/investor interest is generated.  This in turn may lead to an eventual foreclosure proceeding and a possible deficiency judgment.  The one advantage the Owner has is that he has time to rezone the property. If he chooses this route he would probably increase the value of the land  and start marketing and selling parcels.

The large question facing the property owner is:

“Do I spend the money to rezone the property?  And, what happens if that still doesn’t work, and now I have spent a substantial amount of money and I could still be facing a deficiency judgment?”

Obviously, these issues are of critical concern to the property owner and simply stated, this is where a good market study and an entitlement professional can help to give the property owner an understanding of the market place, the appropriate entitlement for the property, sales price expectations, and the time and process for proceeding through the City zoning web.

If the property owner feels a comfort level with the outcome of the two analyses then it may be in his best interest to proceed.

For further information call (602)- 330-8470 Gary Lane, AICP at LBG Development, we have “unmatched experience in every facet of development.” or write your questions and comments to info@LBGDevelopment.com.

www.LBGDevelopment.com

Office  – (480)-474-4385     Mobile – (602)-330-8470     Fax – (480)-814-0628

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