Land

Wrapping Up Land Packages

Learn Strategies for Sealing Parcel Assembly Deals.

For site acquisition specialists, assembling a group of properties for development presents an exciting challenge. Yet putting together the package often is the most complicated aspect of developing a site, and the difficulty exponentially increases with the number of landowners. Even experienced site acquisition specialists find negotiating with several landowners simultaneously while maintaining confidentiality and staying on schedule an exhausting process.

Careful preparation, solid planning, and knowing how to work with owners who are reluctant to sell are essential to a successful assembly. Commercial real estate professionals who have a firm understanding of the process can appreciate the value of an acquisition specialist and avoid roadblocks in future developments.

Locate Appropriate Sites

Site acquisition specialists first should meet with developers to establish site selection criteria based on development guidelines. Commercial real estate projects' specifications vary, but acquisition professionals should ask the following questions.

  • Where should the development be located?
  • What amount of acreage is needed?
  • How should the land be configured?
  • How many access points are required?
  • Will the development require any unusual utility capacities?
  • What traffic counts are desired?

Armed with this information, the specialist can create a systematic canvas of the submarket to identify suitable locations and properties, keeping in mind that assemblies aren't exclusively comprised of vacant land. Many resources are available to complete the picture: global positioning system mapping tools; online aerial photography from governmental agencies or economic development and planning commissions; listing services such as LoopNet and CCIMNet; plat books; and the old-fashioned driving tour.

Contact the Landowners

Once a list of possible sites is compiled, interaction with landowners begins. Asking landowners the following preliminary questions helps determine their attitude toward selling their property.

  • Is the landowner interested in selling and if so, what is the asking price?
  • If more than one property owner, how many decision makers exist and what percentage ownership does each have?
  • What do they know about the real estate disposition process?
  • Have prior offers to purchase been made?
  • What are their key concerns, such as price, timing, or capital gains taxes?

If a property already is for sale, these questions should be asked of the listing broker. However, most properties in assemblies aren't on the market, so many times site acquisition specialists must approach landowners directly. Owners who are reluctant to sell their properties present a big challenge.

Dealing With Reluctant Owners

When a desirable property is not on the market, the owner must decide whether or not to sell and at what price. This decision represents a pivotal point in the process: If the owner is reluctant to sell, the assembly is in jeopardy.

Frequently owners remain uncertain because it is easier not to make a decision than to risk making a bad one. And, oftentimes owners either don't know what the property is worth or have unrealistic expectations of its value. The only way to move the process forward is to establish a dialogue, increase the owner's comfort level with the client and the project, find out the true objections, and try to overcome them. Although there is no template to follow, site specialists must learn as much as possible about the owners, recognize their motivations, and present a proposal addressing their concerns without compromising the client's objectives. This process usually moves the owner in the direction of selling.

If an owner won't sell, the reason usually is timing of the offer or unrealistic price demands. Uncovering these barriers to purchase before the actual assembly process begins saves valuable time. But if it becomes apparent during negotiations that a contract cannot be finalized, project developers should cease discussions and focus on another site. Sometimes knowing the buyer has moved on is enough to spark interest from a reluctant property owner.

Choose Sites and Develop a Plan After contacting landowners and establishing their pricing motivations, developers can prioritize sites based on which group of properties appears to be in the right price range. The next step is establishing the offering price and terms for each parcel and creating a schedule for keeping track of each transaction.

Pricing usually ranges from the offering price to the maximum amount the client is willing to pay based on the development's pro forma, comparable sales, and the owner's expectations of value. However, in most assemblies, one parcel is acquired at a premium price because of time constraints or seller demands. Tracking the overall site acquisition costs as each contract is finalized helps to keep costs within an acceptable range.

Good planning, solid information, and scheduling adequate time in the initial agreements pay invaluable dividends later in the assembly process. Each contract can take months to complete. Guaranteeing adequate time in the initial offer and charting the progress or delays in each subsequent negotiation ensures that all of the contracts contain roughly the same due diligence period.

But complications multiply as the size and scope of a project increases. Many times acquisition specialists are in the unfortunate position of negotiating due diligence extensions with every property owner after the project is underway, which is when the client's leverage is weakest.

A number of issues can delay progress and warrant the need for extensions. For example, a Carmel, Ind., retail development involved seven properties with 18 owners living in five states and one foreign country. From the time the first parcel was placed under contract, an additional nine months were needed to finalize agreements for the six remaining properties. Major site development hurdles included relocating a gas pipeline, constructing a new county road, and setting aside land for future access ramps to comply with a state highway plan.

Make an Offer The next step is to determine a strategy for presenting purchase offers. In every assembly there are one or two key parcels -- based on size or location -- without which the assembly cannot be completed. Specialists should approach these owners first; if satisfactory contracts cannot be worked out for their properties, then finalizing agreements with the other owners is a waste of time and money. However, once the key contracts are signed, the developer must move quickly to secure the other parcels.

In the Carmel assembly, the client was competing with two other developers for the primary parcel. After the property was under contract to the client, one of the other developers started negotiations with the owner of an adjacent parcel, possibly to discuss a joint venture or derail the client's project. Having the key parcel under contract provided the client with an advantage, because the other developer was forced to negotiate unachievable terms to better his position. Still, the client had to wait for the agreement period to end to resume negotiations with the property owner. Despite the positive outcome of eventually placing the adjacent parcel under contract, the client lost six months in real project time and due diligence time on the other contracts.

Another decision in the acquisition process is whether or not to disclose the client's name and the nature of the project to the property owners. A proposed project plan can be a successful selling tool, but developers sometimes are reluctant to identify themselves for fear that one or more owners will attempt to extract unreasonable profits for their properties.

For example, a local health services provider wished to remain anonymous after he selected a site for a hospital project. However, an employee from the engineering firm hired to survey the primary parcel disclosed the proposed project to the owner of an adjacent property needed for the assembly. The knowledge of how his property fit into the assembly and its value to the hospital gave the owner a negotiating advantage. This example demonstrates the value of binding confidentiality agreements for all consultants.

A different approach was used for assembling parcels for an automotive plant in Lafayette, Ind. All property owners were sent letters requesting their attendance at a meeting to discuss the project. They were asked to participate in a rezoning of their properties from agricultural to industrial use, thereby increasing the value threshold. The owners agreed to proceed with the rezoning, and when completed, they received offers to purchase. Since they had already come together as a group, peer pressure and fear of disappointing the other owners made the negotiations, pricing, and terms more collegial.

After determining the negotiation strategy, the acquisition broker should meet in person with the owner or key decision maker to deliver the offer and establish rapport.

The price per acre paid for the first property sets the tone for subsequent negotiations, although each parcel is valued based on its size, configuration, and importance to the assembly. In most cases, owners of unlisted properties push the limits on price until the client refuses to increase the offer. If an impasse occurs, obtaining an appraisal sometimes helps an owner become more realistic about their property's value.

Closing a land assembly package is a satisfying accomplishment for everyone involved. However, there is no blueprint for success, and each time the circumstances are unique. But the reward in solving the puzzle while building relationships is worth the time and effort invested in the process.

Abigail W. Hohmann, CCIM

Abigail W. Hohmann, CCIM, is principal and vice president at Colliers Turley Martin Tucker in Indianapolis. Contact her at (317) 639-0452 or ahohmann@ccim.net.  

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