LBG Development

Design or Maximizing Profit – The Ultimate Conflict

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.

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LGB DEVELOPMENT

We are the experts in land acquisition and development.

LLC provides financial institutions, homebuilders, and large landowners with unmatched experience and expertise in every facet of the land development process. Our time-tested “best practices” model enables LBG to identify the true potential of your asset.