5 Steps For Success In Land Development

A necessary look at the bigger picture:

There are thousands of steps involved in bringing a land development project to completion. Land development is like traveling an unfamiliar hiking trail; you never know what might be around the next corner. At the same time, if properly prepared and equipped for the journey it can be safely and successfully completed. I have 5 steps that I use as waypoints to navigate through a land development project. In no way are they the only ones, but they do seem to be universal and therefore worth taking a closer look at.

Step 1: Is the project economically viable?

Determining economic viability is key to ultimate profitability. I had an investor who bought 9 big pieces totaling a little less than 4,000 acres on a whim. He wasn’t even looking at the time but he ran into a guy that was selling cheap, so he bought it all. BAM…just that fast!! This method of economic due diligence might seem reckless and is definitely not something I would recommend. It did work for this guy because he had the net worth and available assets to do it without concern for the risk. Clearly that’s not most of us, so what is a more thoughtful and measured approach?

Once the acquisition costs are known and prior to any earnest money becoming unrecoverable, I suggest an immediate effort to project the remaining cost of the project. I am the first to admit that this type of initial proforma cost projection is just that - a projection (that can, and will probably change) which is why I have a contingency line in my budget and constantly update every cost center. Within this effort I pay particularly close attention to the fixed and variable development costs, along with estimated construction costs.

More on his can be found in - Economic Feasibility Of Land Development Projects: Economic Feasibility of Land Development Projects — Land Development Realities

Step 2: What are the unique characteristics of the land?

I am not talking about how aesthetically pleasing the dirt looks. Sometimes the most gorgeous property brings extremely difficult development challenges. When I first started one of my investors had a smaller side project that was time frozen in entitlement and he wanted it to get rid of it. As I recall it was 13 five acre lots. The land was in a small valley, sandwiched in between 2 steep slopes. The valley was mostly flat and had a jagged creek running through the entire ownership. There was a ton of old growth trees that made it park-like and a bubbling salmon bearing creek that was spectacular. However, those same aesthetic upsides made the project almost impossible to finish. Why?

The meandering creek made homesites tough to locate. Since it was a salmon bearing stream the set backs and buffers were enormous, thus diminishing the useable land. Over millennia, the surface water runoff from the steep slopes deposited alluvial soil in the valley and overall drainage was poor. There is more, but the point is that in most projects a land developer and his engineering and consulting team should be able to estimate key functional complexities of a proposed project during feasibility. This land was beautiful, but from a land developer standpoint it sucked eggs. It was finally finished and remains to this day the least profitable project I have ever done.

Step 3: Mitigate risk:

I have provided a more in-depth look at risk management in the following post: Risk Management in Land Development: Risk Management In Land Development — Land Development Realities . Within that content is a profile of the traits of successful land developers vs those who are unsuccessful. Here they are:

10 Traits of consistently successful land developers:

· thinks before they act
· does their homework
· has a high risk profile
· follows applicable laws
· hires professionals when needed
· realizes when professionals are needed
· is visionary and creative
· keeps good financial records
· wants to make money and is willing to invest it with no guarantee of return
· realizes that there is usually heavy up-front spending before a profit can be realized 

10 Traits unsuccessful land developers:

· already in trouble with a property and is looking for help
· won’t hire an attorney or other professional when needed
· has a low risk profile
· “Cowboys” – defined as: “moves dirt first, then gets permits if caught”
· signs written contracts they do not fully understand
· participates in verbal agreements for real estate matters
· underestimates costs
· tends to “figure things out later”
· is looking for fast and easy ways to make money in real estate
· Does not understand that development is about following rigid rules

Step 4: Understand the local market:

It does no good to produce a product that does not fit with the local market and in land development there are two broad ways to address the marketplace. The first and easiest way is to fit in with what currently exists; the second and more risky way is to create a new local market. I’ve done it both ways and with success.

Fitting in with the local market:

There was a small town in western Washington that was once a logging and farming town - that along with thousands of acres of vacant land. My original goal was to draw from inside the local market by producing 5+ acre building permit ready lots. While fitting in with the existing rural character I did a bit more that really paid off in the end. Things like asphalt paved roads, cleared building sites, public water, approved septic designs, gated entries and CC&R’s that preserved the rural character, but prevented the projects from turning into pig farms and junk yards. I fit in with the other nearby large lot projects, but I gave my buyers more than my competition while charging a price that was high market value. They sold like hotcakes at the full asking prices! In this case I fit in with the crowd, but gave value added extras that my rural buyers were willing to pay for.

Expanding the local market:

Within the same local market I had another big piece that was on a gentle slope leading up to a bench on top. It had panoramic views of a nearby mountain and the surrounding foothills. It was clear that if this project were closer to the big cities they would be million dollar lots. However I was not near the big cities so what to do? Choice “A” was to go for broke and do a high end community and market outside of the area. Choice “B” was to back off and cater to the local crowd.

There were two investors - one was a multi-millionaire and the other was a billionaire. I decided to bring them together for consensus and they went straight away for the high-end choice “A”, which I guess isn’t all that surprising given their lifestyles and net worth. It was a little harder for me because NO ONE had ever produced a product like this in the area and even though I could make the project really pretty, would it be enough to bring big money from outside of the area? After all, these folks would be shopping at the corner Big Apple market with the locals, the only grocery store in town. Not only that, the closest Louis Vuitton store was 60 miles away. One challenge I’ve had with big money investors, especially self-made guys like these, is that they are dreamers by nature and aren’t afraid to think big. My worry was that their big thinking was going to be my job to profitably execute and if things didn’t work out it would be me doing the explaining why. Anyway, we did it and it worked out spectacularly. We drew in the Seattle and Bellevue crowd as planned, but nonetheless, it was a much bigger risk!

Step 5: Know your buyers:

Being immersed in the rural atmosphere for so long has really educated me on what rural buyers look for and equally important, what they are not looking for. Some folks think that a rural land developer would create a community similar to a suburban community, except on bigger lots out in the country. No so in my experience. A way to illustrate this would be to compare it to my Florida projects. In Florida they want a community center, golf course, pool area, tennis courts and convenience amenities. My rural buyers in the Pacific Northwest want none of that and would not pay for it.

Up there they want privacy. I spend serious time working on lot layouts and even more in creating a building site on each lot that enhances visual privacy. In the beginning I wasn’t as focused on this, but when driving through some of my finished projects I began to notice how homeowners would either position their homes in certain ways or add landscaping and trees to create visual privacy.

My rural buyers also want controlled flexibility. This comes in the form of CC&R’s that are structured to support and enhance a rural flavor. The hot buttons of my rural buyers seem to be similar no matter whether it is the basic or high end crowd. They want flexibility to do what they want (within reason), but they also want overall CC&R control and enforcement so that some idiot doesn’t mess up the feel of the project. For this reason, I put a lot of thought and effort into my CC&R’s.

More on What Rural Land Buyers Look For is found here: What Rural Land Buyers Look For — Land Development Realities .

It seems that the bedrock of a successful project is to know your buyer. In the Pacific Northwest if I dedicate funds to creating open space, dog parks, biking and hiking trails, view corridors and a community park I can satisfy my buyers and not spend funds on expensive extras like pools and community centers that the Florida crowd wants. Neither crowd is wrong. They are different buyers with different demands - just make sure you know what your buyers needs are and use these suggested steps as you see fit! Good Luck!

Contact me at: ldr@landdevelopmentrealities.com

Blog photos courtesy of Unsplash.com - Victor He and Jake Hills - Thank you!