What are they?

Acquisition
Entitlement (permitting)
Construction
Marketing / Sales

The above photo is me fishing in the Gulf of Mexico. Although the weather was ok, there were a lot of unfavorable fishing variables that day like wind direction and murky water from big tides. I got skunked because I didn’t bother to check any of the variable conditions before showing up. Oh well, it’s not the first time and it probably won’t be the last.

In land development the idea of checking on variables before plunging in waist deep is much more important and it brings me to today’s topic: 4 key basics of land development and how not to get skunked…or worse.

Acquisition:

I think I must have seen about every way possible to acquire raw land. Either it’s me doing the buying, or me selling the land to others. Also, there’s the opportunity to see how other developers acquired their land. No matter how the land is acquired, you can learn a lot. The smart way to do it is with a good dose of caution, which is what a lot of testosterone-fueled (but failed) investors need to learn.

Out of the dozens of things that can trip us up in acquisition, it’s important to consider a few of the big ones:

Projecting the market value of the finished product. Who is the buyer and what can the lots realistically sell for?
What will the holding costs be while the land is under development?
What will the entitlement costs be? This includes the fixed costs and the fees of required professionals.
How much time is the project going to take and what are the variable costs?
What are the construction costs estimated to be?
What are the mitigation and impact fees?
Evaluate the total estimated costs against the projected gross revenue.
Subtract for applicable taxes.
Estimate the dead net and determine if closing on the subject land is wise.

Yes, in my opinion all of these and much more should be taken into account during acquisition and before closing. Why? Because if we don’t, we’re really just guessing. A complete pro forma analysis is suggested to manage the acquisition variables sensibly.

For more, see:
Economic Feasibility in Land Development: Economic Feasibility of Land Development Projects — Land Development Realities

Entitlement:

Entitlements are the steps we need to go through to get governmental and regulatory approvals that will ultimately lead to us to a fully approved plat and the required permits.

This is where the wheels can get a little wobbly. Just as every piece of land is unique, so are the steps we have to take to get our approvals. That’s one reason why there is no single recipe for a land development project.

The clear cut approach to successful entitlement is professional guidance. A civil engineer and (in my opinion) a land use attorney are the base of the pyramid. Where you go after that depends. In any case, I feel it’s useful to engage these professionals early on, to include during the pre-acquisition stage.

Construction:

Once through entitlement we have our construction plans set in the approved plat. That, along with any necessary final permits, allows us to proceed to on-site construction.

During the entitlement period we should arrive at preliminary plat approval at some point. It is at this benchmark that I make a serious effort to make sure all the requests for proposals (RFP’s) are out to the construction contractors and I have their final bids in front of me. It’s possible that between preliminary and final plat approval that there will be design changes that affect construction, but my theory is that it’s better to start selecting the contractors early-on.

I worked in the land department for a large corporate builder one time and the Director of Project Management believed that every phase of development could be handled from behind a desk. Although over the years I have been guilty of maybe just a little bit too much time fooling around in the field, construction is one phase where I believe field oversight is strictly necessary. Do what you want, but I belive in a strong on-site presence when machines are moving dirt.

Marketing / Sales:

Well before final inspections the marketing plan should be fully developed. People can get confused about the difference between marketing and sales, so let’s clarify.

Marketing is the process of correctly targeting the right customers and the exact product, method, timeline, tools and materials that will be used. It’s strategic in nature.
Sales is the actual and (hopefully faultless) execution of the marketing plan.

I have become to depend more heavily on the recommendations of my agents over the years on pricing. That’s because they are good. If a developer has a profit target that drives his/her lot pricing that can be fine if it works, but it doesn’t work for me. Here’s why: No matter what you or I think about the value of a given lot, the true market value of that lot is what a willing buyer will pay a seller, without undue influence. In other words, my buyers are ultimately going to determine my market value by the money they actually part with. This is one reason why a solid pro forma estimate with continual cost updates is invaluable throughout the life of the project to keep cost basis under control, which can lead to increased profitability above and beyond the sales price.

4 Basic Parts of Land Development:

We’ve taken a look at only four of the dozens of elements of a land development project. The reader can also take a look at further suggestions to successfully navigate a project and avoid preventable mistakes in this artcilce:

Mistakes in Land Development: Mistakes In Land Development — Land Development Realities

Good luck and stay safe!

Contact me at: ldr@landdevelopmentrealities.com