One of the strengths of my participation in forming successful deals was in being able to source projects. With over 2,300 commercial agents and over 190,000 residential agents inside our (KW Realty) organization, the reach into some of the most lucrative markets is unparalleled. My aim was to develop real estate (RE) projects where we stay in a low risk, higher reward scenario by being strategic about a land parcel’s prospects for growth and demand. I do this primarily in one of four different ways:
1) Buy land and hold it for future appreciation. The critical factor here is to be in the right location when doing this. Even a blind pig can sniff out truffles, but you’d better be in an oak forest. As I like to point out to new agents, unlike stocks, real estate is a predictable investment with indices one can measure. Supply and demand, job growth, politics in a local community, future utilities, competing projects all come into play but when you understand a local community because you have KW agents right there on the ground, you have a big advantage. We never do anything out of town without a KW agent as a general partner in that area. And I only look at states and towns where a blind man can see the future potential. Florida, North Carolina, Texas, Nashville, Denver, Boise, even Bentonville, Arkansas is on that list! Buy the land, hold it for 3 to 5 years and we see 2X to 4X multiple growth. Even better to buy in a recession like we did in Florida back in the 2007 to 2011 crash. Like I always say, “location is important, but it pales compared to timing”.
2) Buy the land and entitle it through adding “paper” value only. Rezoning, preparing a preliminary or possibly final site plan, developing a flood plain recoupment plan, are one of many ways we employ engineers and the needed experts to bring a higher value in order to entice a developer or investor to buy us out. We may be negotiating utilities to the site without getting involved in any horizontal development as well as any number of ways to enhance value without turning a blade in the dirt. Again, in many of these cases, our local agents on the ground are aware of what you might call “insider trading” information which is perfectly legal in the RE business. The key is to get their first.
3) Buy the land and get into horizontal development to sell to builders. This is a step up from strictly paper approvals and only done with the strictest of timelines. In these cases, we like bringing on partners who can do the horizontal with the greatest of confidence in their performance. However, I am cautious of digging in the dirt if I can keep from it as you now add a layer of complexity and timeframes as well as additional capital requirements. Risk goes up so the backend reward needs to be certified, i.e. a national builder commits hard money to buy the lots he’s asking us to develop. I am not into vertical construction for my investors, that’s a good way to lose your hair. Been there, done that.
4) Swift Fund examples. I absolutely love this category and you have to be in my position within a large selling organization to even see these opportunities. What I have observed about developers is they often have great ideas but aren’t really full-time developers as much as somebody with a great idea and access to capital. So it is often no surprise that they get into some lucky deals, but because they lack the expertise needed, get short-circuited simply because they run out of money or time! A perfect “classic” example, I get a desperate call from a local KW agent stating that a buyer of theirs found a great 25 acre parcel, got it under contract with a 120 day feasibility, then 30 day close at a great price but after negotiating a 30 day extension on the feasibility the [ name the city here ] still can’t get their questions answered about [ name the item the city can’t get answered ] so now the whole contract is in jeopardy of falling apart!
The seller is upset and often is not very sophisticated about such things, so now, the land is going for [ name the multiple rise in price ] and there is big profits to be made. The seller wants to “jettison” this “loser” and resell for more money. The buyer is desperate and asking if a partner can be found to “save” this deal. The answer is I see four to five of these type scenarios every year and many of them are absolute winners for short term returns. Often, we as the rescue party have an opportunity to do some short term returns or stay in the deal for a longer share of profits! A lot of the homework has already been done, we just need to provide funding! Again, I love this category, but it is opportunistic in terms of timing. I never know when these deals may show up, but they do, and with regularity.
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