Have you ever persuaded a land owner to contribute their land to a development project?
Seller has a site plan approved project that they're "too old and tired" to bother building.

The project should be wood frame. Its suspended slab design is too expensive to be viable. 

Seller wants to recoup his land, design, and approval costs. 

Buyer is ambitious and has some investors. They think they could rework the project and stay in budget. 

Buyers want to propose the seller contributes the land unencumbered in exchange for 70% equity in the project. 

What's your initial reaction? 
How would you propose it (or what would you propose) to the seller?
[{"id": "hdzpuni", "text": "SEVENTY PERCENT?!? \n\nWhat is the value of the proposed project?", "replies": [{"id": "hdzr0h6", "text": "It\u2019s clearly a shack. In Manhattan.", "replies": [], "depth": 2}, {"id": "he057as", "text": "Land value with the approval is $1.6M. Remaining costs are $4.1M before financing. \n\nIf the land is unencumbered, the land owner kicks in $1.6M in cash. The rest of the hard money ($600k) comes from the developer and project manager.", "replies": [{"id": "he0nos2", "text": "That\u2019s your development costs. What is the stabilized value of the project?", "replies": [{"id": "he16txv", "text": "* Land, approval, drawings: $1.6M \n* Municipal fees: $0.3M\n* GC &amp; hard costs: $4.9M\n* Construction loan: TBD\n\nStabilized value: $8.3M", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hdzpvqh", "text": "If the seller is too old and too tired are they looking to hold an equity position at all?  \n\nWhat is the premium you are offering over him just selling it to someone else and getting cash now? \n\nI'd figure those two things out.  Is the land worth 70% of the project value?  That sounds surprising to me tbh.  The other thing is you sound like you are offering them essentially a limited partner position (you will be doing all the active stuff) when they are the majority equity holder.  I don't know how that works out but from your point of view I'd make sure you understand that, since it sounds a lot like they can kick you out of the project at any time.", "replies": [{"id": "he05nbz", "text": "No he probably doesn't want the equity position. But it's probably the only way he gets all his money out of it, which he really wants to do (and he really doesn't want to have to build it).", "replies": [], "depth": 2}], "depth": 1}, {"id": "hdzq34v", "text": "Its tricky. I've seen this work well. I've also seen this go poorly where it lead to multiple delays and headaches. It really depends on the personalities and level of experience and trust between the parties. The big issues tend to be control/decision making, financing and risk mitigation (proper legal structures).\n\nIts always cleaner for the buyer to own the full nut. That said, if the seller is sophisticated and understands the risks then it can turn into a win-win. For example if seller is a retiring / older developer it makes the most sense. A JV type structure might work here, or something else depending on the size and scope of the project.\n\nFrom the seller's perspective. Do I need cash now or can I sit tight for awhile? What's my upside? Do I want to give up control? Do the buyers have enough experience and capital to complete the project? How are risks being mitigated? Are there enough incentives for the buyers? Do they have skin in the game?", "replies": [{"id": "he0qgjw", "text": "This.", "replies": [], "depth": 2}, {"id": "he3ex5o", "text": "Right. Your major decision list should probably be limited to project abandonment, disposition, construction financing in excess of X. Buyer needs to have the ability to steer this ship without much headache.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hdzq82d", "text": "This is commonly done. You need to a good valuation of the land to be sure the equity stake in the completed project is of appropriate size and an agreement detailing the responsibilities of the developer and if the land owner is just a silent partner or gets input on the development process. Also, what happens in the event of various outcomes (zoning issues, delays, construction defect issues, etc). You want a very good lawyer to structure that for you.", "replies": [{"id": "hdzr9ou", "text": "Yep. Lawyer here. We draft these for MF deals. I\u2019d add putting in some buy out option for seller if developer wants to make changes that are too drastic from original scope.", "replies": [{"id": "hfybgqn", "text": "Was wondering What is the name of this deal type that this is commonly referred to in general? When land owner gets equity in the deal in exchange for land?", "replies": [{"id": "hg1lj2m", "text": "It\u2019s a Joint Venture, landowner vends in the land for equity. That\u2019s about it\u2026", "replies": [{"id": "hg2vuzq", "text": "Thanks!", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hdzre6j", "text": "We do it all the time, although 70% seems crazy?  We give fair value to the land.", "replies": [], "depth": 1}, {"id": "he0qde1", "text": "I presume the land owner wants to capitalize on the value without making any additional investment. Completely understandable in that his asset has value in dollars and...to you but....\n\nThose kind of expectations always turn sour in the end, with one side feeling they got robbed, the other feeling like they did all the work.\n\nJust come to terms with a 10 year lease and a buyout based on some % of the income or % of the overall value, or simply a flat valuation once the asset and tenants (and leases) have seasoned.\n\n10 years will suffice for all parties.  If they want to capitalize on their values sooner....an appropriate discount should be in the discussion.\n\nIt sounds like they want to ride the coat tails of the developer.  If they do, they need more skin.", "replies": [], "depth": 1}, {"id": "he3ejna", "text": "Your seller is going to want a completion guaranty from a warm body who is creditworthy. Does the buyer have someone who is willing to serve?\n\nOf course your construction lender will also want a completion guaranty and the guaranty u give Seller will be subordinate. Let the seller worry about that. \n\nYou could instead support with an LC or escrow, but I doubt you will want to tie up cash unproductively. \n\nI\u2019ve done this before as a developer. Instead of returning $ we returned a brand new 20,000 foot commercial condo unit to the seller. You might prefer to return $. Our JV agreement included heavy penalties for completion failure. \n\nSeller will need a right to takeover and complete the job. Again subordinate to your construction loan.", "replies": [], "depth": 1}, {"id": "he3fedh", "text": "Another idea, you could ground lease the site from seller for 100 years. That way you remove  seller entirely while they clip coupons and leave you alone. \n\nIf this is an assemblage you will need the right to merge the leases parcel with your other lots and build a single structure across all of them. That will creat financing headaches beginning around lease year 85 but it won\u2019t be your problem.", "replies": [], "depth": 1}, {"id": "hfyb82c", "text": "Is there a common industry terminology for this type of deal.. Where the land owner becomes a partner in the deal and the land is equated to the equity % they then own in the deal .  In this case 70% sounds crazy", "replies": [], "depth": 1}]