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| Real Estate & Land |
The Politics of the Deal
Michael Sisk
06/01/2004
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FIVE QUESTIONS WE SHOULD ASK POTENTIAL DEVELOPMENT PARTNERS
1. What amount of capital will each party contribute to the project?
2. What financial alternatives can the developer offer that might
lessen the capital investment required of each party?
3. What return on
investment (for both parties) does the developer anticipate for the
project?
4. How much control over the project does the developer expect
to share with you?
5. What political connections can both parties bring
to bear to facilitate the project? |
While a simple noncontingent sale offers the most immediate payout, it
also leaves the most money on the table, since the developer assumes all the
risks of the project, and therefore takes the lion’s share of the profit. Over
and above the cost of the land, the developer must consider the hard costs
(exterior bricks and mortar), the tenant improvement or build-out cost (interior
work) and soft costs (all legal, permit, architectural, utility, insurance and
other expenses). “A developer will factor in all those permit costs and risks,
so a landowner gives up all that potential profit,” DiFrancesco notes.
A
straight sale bars a landowner from having any influence over a project’s
direction. If we decide that we do, in fact, want to play some ongoing role, we
nearly always have to partner with an experienced real estate advisor or an
actual developer—often the same firm or person—whose expertise can save
immeasurable delays, costs and frustrations. Once a landowner and developer define a project and form a legal partnership, the developer must coordinate with three important constituencies—local political leaders, neighbors and environmentalists—to keep
the project on track, both before and during construction. Aggravating any one
of these sensitive groups can cause significant delays, and might even doom the
project completely.
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