Published December 2001

Extra capital, creativity required for land sales

Buying and speculating on unimproved land is not a game for the weak or impatient investor. To entitle unimproved land and add value takes an understanding of the permit process, environmental review process and much more.

In most real estate sales, buyers “tie up” a property by executing a purchase and sale agreement with the seller with certain timelines and conditions that must be met before the property closes and the transaction is complete. With land sales, there are a number of additional techniques a buyer must apply during the due diligence effort to have the best outcome.

Len Shannon, a Certified Commercial Investment Member and broker in Birmingham, Ala., is author of “The Land Book: Avoiding Mistakes When Buying & Selling Commercial Land.” He provides some valuable tips:

• Choose a site with potential. Sounds obvious, but look for good indicators of future growth. Talk to planners, other developers, retailers, anybody and everybody to get a sense of whether you are buying inside the path of progress or outside of it.
• Be creative. No land deal fits a simple formula for getting through to closing.
• Know the seller’s transaction history. A great tip here. You may need the seller to work with you, provide seller financing or maybe contribute the land to the equity needed to finance a project.
• Obtain a building permit prior to closing. If you can get this, you’ll dramatically reduce your investment risk.
• Get an ALTA Survey. This is the American Land Title Association Survey Standard and is more comprehensive than regular boundary surveys.
• Create a due diligence checklist — and hold the professionals you’ve engaged, such as soil engineers, etc., to it.
• Get everything in writing, especially from the municipal or county authorities.

There’s a saying in commercial real estate that “every deal dies three deaths.” In land acquisitions, this is particularly true. You can help yourself a great deal by trying to negotiate built-in closing extensions up front in the purchase and sale agreement. With this tool in your bag, you can push a closing back if need be and keep an otherwise “dead deal” alive.

Remember, too, that land sales take capital, more capital as a percentage of the transaction size than an improved, cash-flowing property. Make sure you have enough money to see a transaction through to closing.

And make sure you stock up on antacids. You’re likely going to need them.

Tom Hoban is CEO of Everett-based Coast Real Estate Services, a property management and real estate advisory company specializing in multi-family and commercial investment properties. He can be contacted by phone at 425-339-3638 or send e-mail to tomhoban@coastmgt.com.

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