Acquisitions adjacent to your project site
Today we will look at the situation where you need to acquire additional land to make your current project work. For example, consider an adjacent site, where if you can amalgamate, your combined site will achieve a much more profitable outcome. At the government housing department, we had dozens of inner-city single family sites potentially suitable for redevelopment into terraces and apartments. However, many were oddly proportioned, and not well suited to maximizing site density. The sites were literally shaped by decades of the government selling, buying and redeveloping. Quite often there was a neighboring property or two that if acquired and amalgamated would ‘unlock’ the development. For example, a larger site could open-up planning rules allowing a higher density, or it might enable a suitably sized road access. Sometimes the neighbor to be acquired was even larger than the original site.
If you require acquisitions, then you can hire others to approach neighbors or you can do that in-house (maybe yourself). It is quite a delicate situation. If the current owner knows you are going to make more money by acquiring their site, then they may think this is a great opportunity to up the price. If they are not really interested in selling, they may just up their ‘price’ to ridiculous levels anyhow. With that in mind, in-housing that alerts neighbors to you being the interested party might not be such a good idea. Conversely, you (or one of your internal team) may be the best messenger to leave the neighbor in no uncertain terms: if you don’t take this deal now it won’t come around again. And because they don’t have to pay a commission they will get more for their site. This strategy works best if either you don’t need the land (nice but not necessary) or, if you are negotiating during your due-diligence period (where you can choose to walk away).
Outsourcing to a lawyer is a tactic sometimes used. The lawyer will charge an hourly fee rather than commission. However, from an existing landowner’s point of view, being approached by a lawyer is an instant alert that something is up. I have been approached myself and just say, I want to talk to the buyer direct please.
The other option is to use an external real estate agency for acquisitions. That may help keep your anonymity (if that is important) but also could put the potential vendor off (especially if they are approached by realtors all the time). You can never really control what the agent says either and they may not be prepared to hustle over the long term, compared to someone you have involved in-house.
Dealing with a commercial land owner is different from a residential home owner. The former may be more malleable to a business deal, like a joint venture or to share in the upside, so it’s the quality of the person being able to articulate this that’s important. However, they will also be more experienced at negotiating and quite quick to lawyer-up.
Therefore, cost is rarely a consideration in the acquisitions in-house versus outsource debate. Yes, you can save a commission but it’s more about who can solicit the best deal out of a potentially unwilling or over-optimistic vendor.
[In a future post we will look at finding new development site strategies. There are various tactics and processes to find new development sites – going through listings in a disciplined focused manner every day, door knocking & cold calling land owners, approaching other developers, utilising ones networks. And you can either do it yourself, hire someone inhouse or utilise independent contractors / buyers agents who do this for a living (sometimes they are newbie developers who can’t quite follow through and do the whole project themselves yet).]
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