How to Work With Cities & Tips on Repurposing Real Estate

How to repurpose real estate? How to negotiate a contract in an expensive area? How to work with the city to get your project entitled? These were notes from a development event we attended.

Read the entire interview here: https://tinyurl.com/9624cn5k

Smart developers are in touch with their city representatives. The city is a great resource for leads. If you meet with them, they will tell you: that’s a bad land owner, or we want this place developed. Entitlement goes super fast when the city owns the land.

Create a public/private partnership with the city so they sell their land for cheap and you build what they need in the area, and they allow the change of use to what is needed. You would put a development agreement in place, and the city offsets fees to help the deal work.

Ask city what projects are stuck, which projects developers are not paying them for or have loans coming up.

If working with land that the city owns isn't an option, and for areas that you may think there is no more land to build, note that everything is still available to build, in the sense of you can repurpose several buildings. The things the presenter looks to get in contract and build (in their case multi family) are: auto dealerships, used car lots, private schools, a shopping center that isn’t doing well.

When working on a deal in a city that is known to be difficult, for example, any city in California, make sure to keep the deposit on your offer very low. They recommend $50-100k, and make sure that you can get your deposit back if there is a 50-50 chance of the project working out. Try to figure out early with the city if it is likely to work out or not. If the seller doesn't like your offer with a $50k deposit and 2 yr due diligence, show them your track record, in the sense that you will close once you get through the city, and show the fact that you have always closed on all of your deals.

A contract that has worked for the presenter is having 75-90 days feasibility, and at the end of that, have a non refundable deposit, in this example $50k, and have a close of escrow based on getting the permit, or a 18-24 month timeframe, with options to extend. You should also note that you will close earlier if you get the grading permit, or within 18 months and 3 extension options. You may think this is unrealistic in expensive areas in California, but they normally get this accepted because they close on 100% of deals that they get permits for.

As far as getting any property entitled, make sure to have individual meetings with each city council member before getting it entitled, so you can manage the story very well. Find what’s important to the neighbor as well.

People are investing in what they call "bedroom communities" which are the cities near larger cities that are growing, also known as path of progress. An example would be Atlanta and Marietta which is a near by town that people started moving to after prices in Atlanta got too expensive, but they still work in Atlanta.

Lastly, a few months ago we interviewed someone that was building homes with a retail component in the bottom in Utah, so that the owner would have their business at the bottom and live on top, and that person said that those were very popular. However, at this event, they said the opposite, shopkeep space for the bottom part of a house is not the best way to address that, the best is to have a condominium lease floor and have a retail broker lease them out. We are highlighting both perspectives so that you do your own homework, if this is something you'd like to build in the future.