Developer wants to buy one of our properties but would like a year before closing.
A developer would like to buy a property I own but wants a year before closing so they can run test, change zoning and obtain permit. Is this normal? Also, what reasonable options should I consider as I do not want to be under contract for a year without a grantee commitment to purchase from buyer. The property being develop is a multi million dollar apartment complex.
[{"id": "irc1bul", "text": "This is extremely common for developers. I have seen some ask for 18 months. In a \"shifting\" market, you could very well be left holding the bag, especially if pricing changes in your area.", "replies": [{"id": "irc1pg8", "text": "You think is worth it to decline and offer them the options to just buy and deal with the zoning and permits on their on time? I am not in a rush to sell they came us and it appears they need to property for the project they got planned.", "replies": [{"id": "irc2vtn", "text": "I\u2019ve had luck selling them an option to buy. I usually ask for at least 10k++ so it stings to walk away from. It also gives me a tiny but instant infusion of operating capital. \n\nThis only works if they really want your site.", "replies": [], "depth": 3}, {"id": "irc43g4", "text": "I would propose two prices to this developer. \n\nSay the price is $1,000,000 as-is, and $5,000,000 after the rezoning, I would counter with:\n\n$1,000,000 w/ 12 month closing if the property DOESN\u2019T get rezoned. \n\n$3,500,000 w/ 12 month closing if the property DOES get rezoned. \n\nOr he can pay your carrying costs + rent for 12 months if he wants to back out after he doesn\u2019t get the rezoning. Either way you don\u2019t want to be stuck with nothing to show for it after 12 months.", "replies": [], "depth": 3}, {"id": "irc582j", "text": "Some want permit in hand. It really depends on their use. As long as the due diligence ends quickly enough and your money goes hard not much to worry about. But if you need to wait for the closing for the money to go hard have your agent negotiate it out.", "replies": [], "depth": 3}, {"id": "ircaq0r", "text": "Right now I don't know any major apt guys who are closing at zoning unless the site  is super prime. I would price it based on potential density (per door). Typically you will give them 90-120 days for DD, most consultants are backed up right now so I am seeing 120 day dd being more standard. After 120 days have 50-100k go hard, another large deposit after zoning. 6 months after DD period. This could be anywhere from 100-400k. Ask to have the EM released instead of held in escrow. Pull comps from GIS and try to pull them plans from the city. This will tell you how much MF land is trading for per door. Ask them how many units they can fit and what kind of product. There are quick close buyers out there but you are going to get less money if you shift the risk to the buyer they will need more reward. Otherwise your focused on getting lucky. If you're in a major metro this may not be the norm, but this is what I see in tier 1 in the southeast. In January people were closing at zoning. Now very few institutional groups are. You could also put milestones in the contract, submit for zoning by x date, etc.", "replies": [{"id": "ire2lcr", "text": "Only thing I\u2019d add is about finding comps. As land closings come so far after signed contract, any comps you find are often behind by 12-18 months. If you went off those you may be leaving millions on the table.", "replies": [{"id": "irjifuk", "text": "This is true. I think with interest rates rising price increases are going to slow down. That said, so market specific. Maybe find comps and marketed properties and average. Comps probably put you in the lower end of the ballpark. Once you know what the ballpark is it comes down to haggling/buy pro forma, and justifying your haggles.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "irc2qfa", "text": "It\u2019s normal. If you aren\u2019t in a hurry, you could talk to an agent and zoning lawyer and, with their guidance, re-zone it yourself. Developers will sometimes sell at a profit without actually building anything because the re-zoning itself can increase the property value. Of course, you\u2019ll need to be confident (i) the increase in value from re-zoning will outweigh the attorney\u2019s fees and (ii) you\u2019re okay with paying the attorney\u2019s fees if the application to re-zone is rejected.\n\nIf you don\u2019t want to go through that, you will likely have to accept an offer like the one in front of you (i.e. with contingencies) or take less money to mitigate the developer\u2019s risk. Assuming any developer would need to re-zone.", "replies": [], "depth": 1}, {"id": "irc395m", "text": "Typically what you can do is negotiate non-refundable earnest money with multiple tranches as you approach the scheduled close date. Might be worth it depending on what you can get and what you would plan to do with it otherwise.", "replies": [], "depth": 1}, {"id": "irc4g8d", "text": "The permits and tests are OK. The rezoning contingency is a non-starter since that\u2019s a crapshoot. Unless you have inside info that it\u2019ll get approved.", "replies": [{"id": "irc4t6w", "text": "I honestly believe it is very likely to be approved.", "replies": [{"id": "irc5e7k", "text": "Then why don\u2019t you apply yourself to get the benefits?", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "irc5o94", "text": "If I rezone it will put me within the city limits currently with county. Absolutely do not want to be in the city.", "replies": [{"id": "ircaqhn", "text": "Why would you care if you are selling it?", "replies": [{"id": "ircc0il", "text": "If it gets rezoned and then buyer backs out for whatever reason, OP is now stuck with whatever annexation agreements were required to get the rezone. \n\nAlso, not knowing current zoning or use, a MF rezone is not always advantageous, if sale falls through.", "replies": [{"id": "ircvf59", "text": "Exactly", "replies": [{"id": "irdin3p", "text": "You might want to put in a escalation for additional non refundable deposit upon change in zoning if that is your concern.\n\nIf a major recession hits vacancy and rents, the buyer could back out. Ultimately I think the zoning change would increase your property value, but it could take a while for a recovery from a recession before builders go looking to buy more land.\nThere were places in Florida where the PUD approvals expired around 2013  that were planned in 2008 and needed to get updated and approved again for building.", "replies": [], "depth": 5}, {"id": "irebplm", "text": "Developer should be okay with significant non-refundable money after the rezone is completed", "replies": [{"id": "irfqkpw", "text": "A typical structure for me would have earnest money at like 3-5% of purchase price up front, completely refundable for 90 days. After 90 it goes hard with the exception for zoning not playing out. After zoning approval an additional 5-7% of purchase price goes hard", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "irc6gvr", "text": "It is not uncommon. Make sure you are well represented when reviewing that contract. You have to make sure that they can\u2019t back out \u201cjust because\u201d. Make sure you have ONLY the contingencies for zoning, building permits, etc. \nAlso, careful with syndicators. They can tie your property up and then back out because they couldn\u2019t raise the capital. Ask for POF and past projects/properties owned.", "replies": [{"id": "ircvdr3", "text": "Exactly", "replies": [], "depth": 2}], "depth": 1}, {"id": "ircepc4", "text": "Pretty normal, could be longer if in a market where it\u2019s hard to rezone. Ask for deposits in the PSA, sometimes you can get them yo give you non refundable ones", "replies": [], "depth": 1}, {"id": "irchgea", "text": "At a large multi family developer. If I\u2019m buying a site that already has zoning in place I\u2019m typically getting 90 day feasibility, after that earnest money goes hard and I\u2019ll get another 210-270 days to close.\n\nIf there is a rezone involved I\u2019ll get extra time to take care of that\n\nThis is in Texas where the permitting process is relatively easy compared to some other states. We will spend ~$150k during feasibility and ~$1.5 mil during the closing period so walking away hurts pretty bad", "replies": [{"id": "ire2nfm", "text": "Do any work in FL?", "replies": [], "depth": 2}], "depth": 1}, {"id": "ircs69h", "text": " We\u2019ve pursued deals for several years, I feel like it\u2019s not super uncommon. Weigh the pros and cons man! Capital markets are a soup sandwich rn, if you can make it out with decent IRR and that outweighs what you\u2019ve pro forma\u2019d then go for it tbh.", "replies": [], "depth": 1}, {"id": "irctqer", "text": "Normal. If the developer later walks away (for whatever reason), it hurts *them* pretty bad since they're spending a butt ton of money first on feasibility and then on plans / entitlement. In order words, they have incentive to see the deal through so as long as the deal pencils out.\n\nAsk for a deposit that becomes nonrefundable after 60 or 90 days, and then more money as they progress in securing entitlements. All that money goes toward the total purchase price, so what you receive at closing will be net of all deposits / monies. Pay attention to when the money is released to you and what its contingent on.", "replies": [], "depth": 1}, {"id": "ircu2gq", "text": "You should be getting either a) well above market at closing or b) a monthly non refundable  option fee", "replies": [{"id": "ircv9vz", "text": "63% over market value.", "replies": [{"id": "irebx6s", "text": "I\u2019d get in touch with a lane broker. If you\u2019re thinking this buyer is paying that much more than the land is worth I think you might be a bit out of touch with where the market it", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ircvyck", "text": "Make sure to include in the contract that if they cancel you own all the due diligence materials ie studies and reports. Will make it much easier to streamline it for the next buyer using the 1st parties money.", "replies": [], "depth": 1}, {"id": "ircyp3o", "text": "100% normal. This is how developers pay the high prices that they offer.", "replies": [], "depth": 1}, {"id": "ircyus4", "text": "Get something in hard money for giving all that time. If they\u2019re paying for due diligence then they should be willing to pay some hard money for time", "replies": [], "depth": 1}, {"id": "irdiamj", "text": "This is common. Ask for non-refundable earnest money.  The alternative is for you to start permitting the project, and try to sell it shovel ready with permits for a premium.", "replies": [], "depth": 1}, {"id": "ire57iv", "text": "Get a BOV", "replies": [], "depth": 1}, {"id": "irgr8nw", "text": "Don\u2019t give them more then 90 days if not 45 days for DD if they are actually interested they may be looking for a reason to low ball you on the back end", "replies": [], "depth": 1}]