Land Developement Lacking Direction

A real estate land development company in Alberta owned several properties and was experiencing a liquidity crisis.  After getting the development approvals needed to proceed with its projects the company was facing negative working capital and a large lawsuit which had caused three directors to exit the business. 

With no direction and a complete lack of confidence in what to do and how to proceed there were requirements for litigation support, development planning review, funding sourcing, and additional cost reduction decisions to be made.  

The company began efforts to become virtual by giving up the physical office space and reducing the monthly overhead costs.  In addition, there were new funding deals needed and new ways to approach land sales and joint ventures to fund investment into infrastructure the company didn't have the resources to deal with. 

Every aspect of the business needed to be improved or changed to adapt to the new demands placed on the company.  This situation was especially sensitive to additional risk and exposure of potential mis-steps as there were over 800 investors who had participated in helping to fund the purchase of the properties.  

A new strategy for dealing with the lawsuit was pursued along with sourcing new legal counsel.  Several funding sources were also examined to provide both short term liquidity as well as larger longer term options.  New real estate brokerage relationships were added to increase the market reach of the company to provide access to  joint venture partners and increase the sale prices achieved in any outright project disposition.

The company was ultimately set up in a stronger financial position and was given the opportunity to pursue new value maximizing initiatives on behalf of the investors.

West Coast Residential Rental Building

A developer on the west coast had acquired a site and gone through the work required to have plans for residential rental building designed and the site rezoned. After investing 7 figures into getting the project ready for final construction drawings the company ran into difficulty completing a limited partnership agreement that investors would accept.  After working for over 12 months on the documents and still not having received major investor buy-in the project was stuck.

Our advisory work began with reviewing the pro forma to provide some minor cost savings suggestions.  The primary effort went into re-designing components of the limited partnership agreement to both increase the priority position and thus the security for the investors coming into the project and at the same time increase the opportunity for the developer to enhance their ownership stake overtime.

Some key changes included creating a split common/preferred equity capital structure with a dual type mortgage secured preferred class. These changes allowed the project to access all eligible funding channels and optimize the tax treatment for all parties. 

With an initial 45 day sprint to review, make changes, and redesign all of the presentation materials, and create supplemental project videos, the project was able to subsequently obtain the common equity capital needed to engage the remaining consultants to finish the construction drawings and final pre-construction preparation. 

The right approach to funding requires simple but effective deal terms for investment sources as well as a combined overall approach to managing the timing of capital advances to coincide with progressive mitigation of development risks.

To find out more about funding approaches for real estate projects enter your current email contact info on the "about REAfe" page and we will be sure to provide you with some fresh options. 

Greater Vancouver Land Development

One real estate development company acquired a parcel of land in excess of 100 acres planning to rezone and subdivide the property.  After 3 years and a hard won rezoning process they found themselves with development cost charges, infrastructure investment costs, and community amenity contribution requirements which would make the project uneconomical to complete.

Believing the highest density plan would be the most profitable lead this company to design a plan which would also require the largest capital outlay in advance of generating any lot sale revenue. The large number of homes planned elevated the services design to a community scale system which magnified costs.

To solve the problem, the project was re-designed to switch the site to a bare land strata where the engineering specifications applied would allow for more cost effective interior driveways, septic treatment, and water supply standards to be used.  By reducing the number of lots and changing sizing along with the competitive offering the optimal balance of total revenue and gross profit margin could be achieved. 

Ultimately the change in plan took the project from having a residual land value from $3.5 million to up over $10 million. One other benefit of this approach is the allowance for easier phasing of site works for the individual lot servicing investment and gives the developer the ability to use sales revenue to cover later phase costs.  Maximizing density generally achieves the highest value but not always.

For development economics design ideas, fill in a contact email on the "about REAfe" page and we all be sure to find some value creating alternatives for your project.