Approaching multi family developers for a covered land play
I’m under contract to buy a 1.5 acre parcel in a pretty hot city.  It’s a covered land play selling for about 7M at a 6.5 cap.  The site is zoned for max density and is an awesome multi family play or even large office play (pending the office world recovers).  

I’m planning to raise 50% equity and slap debt on the rest.  I already have a lender lined up.  I don’t anticipate investing any of my own money and am confident there is strong demand to build on the site.

Here’s the thing...I’m planning on being the sponsor today (managing, leasing, etc the existing real estate myself through my company) but want to know how to best capitalize it for future development.  Should I approach prominent multi family developers today to be an LP but have rights to buy and control the site in the future while keeping me in the deal as an LP?  Can I tell them to front 3M of equity in exchange for rights to develop/own the site in the future so long as I stay in the deal?  Just trying to think about how to make money on it without investing my own capital.  

Thoughts?
[{"id": "ghsamob", "text": "You\u2019re probably better asking this on WSO imo", "replies": [{"id": "ghsb6dg", "text": "What is wso?", "replies": [{"id": "ghsb9rr", "text": "Wall Street Oasis", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ghsc2yn", "text": "Yea, pre-negotiated purchase options aren\u2019t uncommon, but couple of points. (1) it\u2019s a covered land play, lever it up past 50% at that cap rate you should be able to get accretive debt (2) there\u2019s no way anyone is going to contribute money to this thing 100% and not have you put in a dime and let you retain any control rights. You need to be in the GP position and no LP is going to let you mark up the land basis as a contribution (unless you\u2019ve done entitlement work? And even still it\u2019s an uphill battle). (3) developers are super busy working through the fuck Up that\u2019s going on, you\u2019re better waiting till you have a plan to start talking about it. Oh and own it too. \n\nIn general though not sure how you are going to get this thing without putting any of your own money at risk, and I\u2019ve worked on a ton of fucked up deals over my career, haven\u2019t seen anyone get economics without having something of their own at risk.", "replies": [], "depth": 1}, {"id": "ghvtf8m", "text": "Agree that if your not investing as a GP in ~90/10 JV AND not adding any value on entitlements it\u2019ll be tough to get an LP to fund 100% capital. Recaps are common if you\u2019d perfected the land via entitlements or something but that isn\u2019t the case here. An alternative approach may be what is required: \n\n1 If it\u2019s currently pre-entitled and you are adding value on that front, see if you can get them to fund all pre development costs. Then give you a payout at FMV land post entitlement. See if you If can negotiate contributing some of that step up into the JV once you begin construction.  They\u2019ll cap what you can roll into the dev co JV to avoid dilution \n\n2 contribute the land at a discount to a new JV partner upfront and roll the difference as a GP capital account. This is swapping nickels for dimes in some ways, but leaves more room to negotiate and make money depending on what your goals are. You can make a larger total profit this way overtime if you get a promote", "replies": [], "depth": 1}, {"id": "gi03iyu", "text": "I syndicate MF deals in the Canadian marketplace. Short version.. have skin in the game to a level which a fellow investor is comfortable with. Otherwise you are pissing up a rope. I agree with some of the comments here in splits/pm", "replies": [{"id": "gi2py98", "text": "Thanks!  So in your opinion, is there no way to participate other than basically acting as broker here?", "replies": [], "depth": 2}, {"id": "gi2q0gh", "text": "In other words, would a strategic investor be willing to co-GP just for bringing them the deal?", "replies": [{"id": "gi8uzul", "text": "I\u2019m not really sure what the objectives are. Long term hold? What is the cover? How reliable is the income? How diversified is the income? Why go to 50 % equity ltv (crazy)? What is target irr for financial partners? What is your risk mitigation strategy?", "replies": [{"id": "gl4srvg", "text": "I\u2019m under contract at a 6.5 cap.  Two garden story office buildings that have a huge surface parking lot.  \n\nTotal development play to build up to 550 units on 1.5 AC.", "replies": [], "depth": 4}], "depth": 3}, {"id": "gi8vefg", "text": "Anyone can say \u201cthey\u2019re in\u201d. Dont be cashing cheque\u2019s until the money is actually in the bank. Are you providing cash flow? What kind of security if anything?", "replies": [{"id": "gl4szck", "text": "Got a group to pay $300k up front for participation, $300k upon the earlier or EOY4 or when they decide to build or sell, and I participate in 10% of sponsor profit.", "replies": [], "depth": 4}, {"id": "gl4t7wn", "text": "Not providing cashflow.", "replies": [], "depth": 4}], "depth": 3}, {"id": "gi8vj8m", "text": "How many deals have you done? What\u2019s your experience? This all comes to the ask", "replies": [{"id": "gl4t2l7", "text": "First deal although I\u2019ve worked on millions of SF in commercial in NYC.", "replies": [], "depth": 4}], "depth": 3}, {"id": "gi8vlqw", "text": "Who provides the guarantees? You or investor?", "replies": [{"id": "gl4t5n2", "text": "The investor, although I put up $35k in soft deposit to secure the contract.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gi3vy59", "text": "If you can foot a small portion of the equity, it becomes easier to approach developers etc. to do a JV with you. \n\n&amp;#x200B;\n\nI strongly urge you to really look at the underlying entitlements, setbacks etc before you pitch this to anyone. Just because it is zoned for max density does not mean that something can be developed on the site functionally. The easiest way to get blown up, and get a bad rep is to peddling something without having all of the info needed. \n\n&amp;#x200B;\n\nMy Suggestion? Because you have no experience in development, or JV structure etc which is apparent in this thread, you flip this deal for a spread and move on. \n\n&amp;#x200B;\n\nTie it up, test the market, see if you can build in a 200k spread and flip it. IF not, drop it after feasibility and move on.", "replies": [{"id": "gl4vsxt", "text": "For what its worth.....\n\nCheap land/wrong land is the MOST EXPENSIVE LAND you will ever buy. \n\nThis happened to me:\n\n1. Found a large parcel of land in a secondary market\n2. Rezoned it from .... to Multifamily (156 units)\n3. Built it based on a proforma that I created and bought into\n4. Lost 100% of my investment after building it because the demand and income in this particular market was not sustainable.\n\nBottom line: Just because you can (build x units) does not mean you should.\n\nWhat would I do differently? Enter markets where the economic fundamentals are real and dont overbuild.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gib9hl4", "text": "Is there room to give the landowner more money if you went the high density route now? Easiest way for you to not invest your own capital (or at least alot of it) is to get a forward deal with a developer today (you can probably negotiate a hard release of money upon expiration of due diligence or your site plan being deemed complete) and make your contract with the landowner, which has to be for more money than it stands today, contingent upon receiving unappealable approvals. In many instances you will also likely be able to get the developer to pay for your approval costs - most times they will want that credited back at closing\n\nAt closing you would realize the difference between what you are contracted for with the landowner and whatever deal you strike with the developer.  The beauty of this is that you won't ever have to come up with the money to buy the land - you will assign your contract to the developer at closing and all payments will be simultaneous.  The only real question is is the landlord willing to wait to close for the prospect of more money.  Could be harder in your situation though since the property is already zoned as they might already believe their land is worth the premium today.\n\nIf you have any other questions don't hesitate to ask, there is alot more that goes into this but this is a brief overview of a deal structure that works with incredibly high returns, and doesn't involve much capital.", "replies": [], "depth": 1}]