How much liquid cash is required for a development?
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[{"id": "ghbpwvx", "text": "How many condo's? How many square feet? Whats the permit costs?\n\netc etc. \n\nhow long is a piece of string?", "replies": [], "depth": 1}, {"id": "ghbrp2c", "text": "I'm trying to make the jump from buying and renovating multi-family apartments to building new construction, and I'm seeing equity requirements (cash) of about 30% as typical, with the absolute minimum being 20%.  \n \nSo if you are looking at 50 x 1000 sq ft each plus 15% non-revenue space and at, say, $200/sq ft construction hard costs, then 20% soft costs...   You are at about $14mm for the project cost which means you need $3-4mm in cash if you want 100% ownership.  \n  \nKeep in mind that's all just off the top of my head from what I've heard working in mult-family and doing renovations.  I'm sure there are some places in the US where multi-family is way less than $200/ft and some places where it is as high as $300-350 if you have to do concrete and lots of seismic, or you have contamination because it's a parking lot.  \n \nSo I guess the short answer is:  several million at least.  Now if you own the land outright and it's worth a couple of mill, you might be able to creative but I'll let someone more experienced explore that.", "replies": [{"id": "ghc7d1o", "text": "200/sf won\u2019t get you within sniffing distance of building high rise construction. You can build new class b garden style apartments at that basis now", "replies": [], "depth": 2}, {"id": "ghcnae6", "text": "I\u2019ve heard banks are asking for more than 30% now... compared to 12 months ago. Have you noticed this as well??", "replies": [], "depth": 2}, {"id": "ghd03qt", "text": "How do you find developers?", "replies": [], "depth": 2}], "depth": 1}, {"id": "ghc6fxc", "text": "You can get seriously hurt by delving into waters that you don\u2019t understand. A good first step is to look at the general plan and specific plan to see what the zoning is for your parcel and to determine if any special entitlement is needed to develop condos. One concern that comes to mind is the fact that you have a parking lot. Parking lots are often done to cover up environmental issues and your highest and best use might be the parking lot because of potential remediation costs. \nYou might consider talking to a few fee-based developers in the area. One way that you can participate is by contributing the residual value of your land to the development for a share in the ownership. Keep in mind that your equity contribution might require contributions to the greater cost of the development should unforeseen issues come up. \nGood luck!", "replies": [], "depth": 1}, {"id": "ghcmq91", "text": "Have you considered taking this through the entitlement process and doing a preliminary design and then selling a turnkey package to a developer? You\u2019ll add more value than what it will cost you to take it through that process.", "replies": [], "depth": 1}, {"id": "ghcn50p", "text": "You own the property, you hold the leverage. There are various ways you can cash out with increasing levels of risk. Sell as is to a developer, acquire entitlements and sell with a permit, or entitle the property and build on your own (or joint venture). \n\nThe trick to each is reducing your risk - and explicitly confirming the potential of the site. \n\nAn example of this is simple - you believe you can go 12 stories and build 50 units... but that doesn\u2019t include many details that impact efficiency after drawing plans / applying local zoning limitations / calculating your FAR (if your zoning has limits). \n\nIt\u2019s complicated and cost more (or less) money that anyone on Reddit could predict. \n\nI\u2019m a licensed architect - feel free to PM me if you have detailed questions. I\u2019ve flipped a few properties myself... I wish you luck.", "replies": [], "depth": 1}, {"id": "ghcpeij", "text": "where are you? west side of manhattan is a different answer than middle of montana. pm me to chat.", "replies": [], "depth": 1}, {"id": "ghcy31o", "text": "Depends on how you structure the deal. You needn\u2019t put in anything because your contribution to the transaction is the supported but speculative market value upon construction completion. If you\u2019re asking out of curiosity, most lenders want to see at least 25% cash, maybe more, (75% LTV) as new construction is a risky investment. \n\nMy two cents - depending upon where you live, condos are tough to finance. \n\nThere are a lot of ways to skin a cat! If you want to chat further, DM me.", "replies": [], "depth": 1}, {"id": "ghcy9hb", "text": "Find a developer who you want to partner with and throw your land in as equity in the deal.", "replies": [{"id": "ghd9zst", "text": "Exactly this!  They wrote the same thing I did in far fewer words \ud83d\ude02", "replies": [], "depth": 2}], "depth": 1}, {"id": "ghcypnf", "text": "I\u2019d be apprehensive to jump into a Class A (probably the only kid that will pencil) apartment or condo development in a urban area right now. Even putting up the land as equity and taking a LP position comes with risk. Risk due to oversupply (depending on the market) causing rent/value stagnation, and due to your partner being able to execute. You\u2019ll likely be on the hook for additional capital if the project costs run over proforma. That all depends on the partnership structure though.", "replies": [], "depth": 1}, {"id": "ghczsn8", "text": "Another option.. you could talk with a broker about doing a ground lease to a tenant.  Probably not a condo situation but you could receive payments and go NNN so that the tenant would cover all of the taxes and costs of maintaining the property.", "replies": [], "depth": 1}, {"id": "ghd0e74", "text": "Depending on your geography I may have some experience. I\u2019m a mixed use developer. I\u2019ll shooter you a dm.", "replies": [], "depth": 1}, {"id": "ghd9ral", "text": "I see interest in this sort of question all the time and I structure lots of deals where someone will own the land and is interested in at least figuring out what they could create with it. \n\n1) Read my post from earlier this month to get a feel for the entire development life cycle. [https://www.reddit.com/r/CommercialRealEstate/comments/kj7311/building\\_and\\_selling\\_multifamily\\_project\\_for\\_12m/?utm\\_source=share&amp;utm\\_medium=web2x&amp;context=3](https://www.reddit.com/r/CommercialRealEstate/comments/kj7311/building_and_selling_multifamily_project_for_12m/?utm_source=share&amp;utm_medium=web2x&amp;context=3)\n\nI talk about how I started a ground up project from raw dirt, secured the financing, oversaw the construction, and then began to lease it up ultimately to a sale shortly after getting the certificate of occupancy.  I helped raise $6m, put in $2m of our own, I then closed the $24m construction loan, oversaw the build out,  then when it was all built, started getting it leased up when after there was some interest, I was able to sell the project.  It cost us $32m and we sold it for $44m.  After returning the $6m of equity raised to the investors, we then had about $12m left to split as profit.  The investors did really well, all over about 3 years (one for planning and two for construction).  This isn't directly going to answer your question here but it provides a nice framework and will provide a lot of insight into how a development deal could be structured. \n\n2) How much money do you have and how much money is already invested in your property?  You can generally borrow up to 75% of the cost of a project (LTC - loan to cost) as the construction loan.  The remaining 25% of the cost needs to come from the equity group, the owner.  That 25% could be money you put in (as your land and/or additional money to cover soft costs such as planning, permitting, plans, entitlements, etc) or it could be raised by someone else.  You can get institutional money (like a company who's job is to put equity in these types of deals) or you can go raise the money from individual high net worth individuals (people with a net worth that want a piece of your deal).  \n\n3) You also need an experienced developer (someone like me!) who knows how to structure the deal and oversee it.  **DO NOT DO IT ALONE AND DO NOT TRY TO WING IT.**  If you don't know what you're doing, you will make a mistake and cost yourself a lot more than the money you thought you'd save by not bringing on-board someone smart.  It is far more valuable to give away 5-10% of the project but have it net you $$$ than it is to keep  100% of a project that results in wasting your money, time, and energy.  Avoid that. \n\nI mention bringing on-board a developer because some are able to give you 15-25% of the deal (depending on the value of the land) and then secure the equity, the construction loan, oversee the construction, and ultimately get it to certificate of occupancy and then get it leased up, if applicable.  If you want to put more money in the deal, then of course you would keep more % of the deal.  Note, developer will generally take 5% of the total project cost as their fee and then they may or may not take ownership in the deal (depends on the other equity partners, the need, and what is negotiated. \n\nIf you have other details you'd like to share or if you'd like to PM me, please do!  I like to write and respond on Reddit so others can benefit from the questions and answers but you are welcome to reach out and connect with me as well.  I'll try and read the other comments and provide my insight as appropriate.  \n\nBest, \n\n\\- HYD -\n\n&amp;#x200B;\n\nP.S.  If you'd like, I could ask you some questions on where the project site is and I could put together a simple high level development deal for you and I'll even turn it into a post here and show others how to structure it it.  I would do this for free (not looking to get paid).  I love development and I love putting deals together.  I'll share the whole process and how to structure it, what sort of returns and investments you would need and expect, etc.   If you're up for that, let me know and PM me!!", "replies": [{"id": "gihylbv", "text": "This is the best comment. OP you need reach out to this guy.", "replies": [{"id": "gl0dt5t", "text": "Thank you!!  Very kind of you, u/C_Flex.  u/Vernemor  \\--  Feel free to PM and we can work on a new post together and make a case study out of this to share with the community.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ghdca62", "text": "Check the zoning, see highest and best use of the land. Get a sense of value for the land.\n\nArchitectural firms could give you a per sq foot cost to build so get to know some architects (pick their brain for information) and to see who area some developers in your area.", "replies": [], "depth": 1}, {"id": "ghdepyg", "text": "Do you own the land free and clear?  It would be difficult to leverage something that is already leveraged.", "replies": [], "depth": 1}, {"id": "ghdhxqk", "text": "Some folks that have commented may not be familiar with how condo financing is typically structured:\n\nThrow all of the advice you\u2019ve received for multifamily out of the window. Condo financing is completely different. Here\u2019s why:\n\n* New construction condo projects are appraised on a unit by unit basis, so the **financing is structured accordingly with what\u2019s called release prices that are typically around 125% of the purchase price or appraised value, whichever is higher**. Condo developers must have extremely liquid pocketbooks. The release prices are due to a variety of factors such as the costs to construct common areas that can\u2019t be sold.\n\n* The maximum LTV/LTC will never be anywhere near 75%, 60% max is the most I\u2019ve ever seen.", "replies": [{"id": "ghdzeht", "text": "can you even get condo financing right now? I\u2019ve heard you need 50% pre sales now in the major markets to start closing units... tough business. I don\u2019t think I\u2019d lend on a condo project today (but I\u2019d consider buying the debt...)", "replies": [{"id": "ghekmvg", "text": "I actually do know a few lenders who are still willing to do them, believe it or not. In lieu of pre-sale requirements, a lower max LTC has been the route they are taking (average is 55% or so).", "replies": [{"id": "ghep16k", "text": "The equity side of my brain says if you start a condo development now in urban core you\u2019ll probably be fine when you deliver 3 years out, the credit side says I\u2019d never lend on that. I guess it\u2019s a good thing my fund dox restrict me from doing condo development! I have been working on buying condo debt, really like the play of buying it to collapse structure convert to rental then sell to someone down the line as a mapped project ready to go for a converter having enjoyed it as a rental for a few years. It\u2019s still kind of tough though you uw this stuff and even buying the 80% LTC b piece you\u2019re still like 100% LTV stabilized", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ghfblw2", "text": "If you have valuable land and equity in it, you may not need any cash at all. The developer would probably be thrilled to let you get paid for the land as the units sell.", "replies": [], "depth": 1}, {"id": "ghv6p3g", "text": "I would do an equity deal. Get a lump sum upfront and % on the back end.", "replies": [], "depth": 1}]