Don't Sell Your Land - Joint Venture Best Return

LandSale

As properties get increasingly scarce in prime areas, they are increasingly in demand by developers. The most common transaction between the landowner and developer is for the developer to purchase the land from the landowner.

This is never the best financial return for the landowner. The best return for the landowner is to enter into a joint venture with the developer, by placing his land in the deal as debt/equity investment.

The developer enters into an agreement with the landowner where the landowner invests the value of the land as debt with 0% interest and 20% equity of the profit. (Note each deal will have its own uniqueness based on land value, cost to build, and retail value of the real estate once completed). 

Landowners have to explore ways to extract the highest value from their land and have a long-term vision for sustainable revenue. If you are looking to attain the highest value from your land then a joint venture with a developer could be an opportunity worth exploring. 

Land

THERE ARE MANY LANDOWNERS IN JAMAICA AND THE CARIBBEAN WHO HAVE THE APPROPRIATE LAND TO DEVELOP, HOWEVER LACK OF CAPITAL AND DEVELOPERS SKILLS TO BE ABLE TO UNLOCK THE BEST RETURN ON THAT LAND.

A joint venture is a great option for both landowner and the developer when the situation is right. The landowner has no mortgage on the land and the landowner cannot fund the project on their own.

The landowner can enter into an agreement with the developer whereby they will provide and arrange all the capital for the soft cost (Soft costs include architectural, engineering, surveyor, valuators, quantity surveyor, due diligence financing cost,  legal fees, the cost for the approval process with all the government agencies and other pre-and post-construction expenses.

All costs that are not part of the direct construction cost. This is normally between 8% to 12% of the total project cost.) and get the construction financing(Hard cost)  from either a bank or other financial institution, to build out the project. 

REAL ESTATE DEVELOPMENT CURVE

RealEstate

Let’s look at an example: (Note: All $ are in Jamaican $ JMD)

The landowner puts the land in the deal for the appraised value of the land $21,000,000.00 as debt with 0% interest payment until the land is developed and all units sold, plus 20% equity of the development.

The land 7.5 acres are approved to build 73 units 2 bedroom, 1.5 bathrooms, 

775 sq.ft. home. 

  • Land Value $21,000,000.00 (held by the landowner)
  • Building Cost $859,924,248.00 (Funded by developer and banks)
  • Total Project Value $987,233,750.00
  • Profit (Before Taxes) $127,309,502.00

The landowner payout after development is completed and all units sold out:

  • Land Value $21,000,000.00
  • Profit    $25,461,900.41(Before Taxes)

The landowner is paid at the end of the project $46,461,900.41. Estimated time from start to finish 2.5 years.

THIS IS WIN-WIN FOR BOTH THE LANDOWNER AND DEVELOPER.

Mark Purai

876-796-2836 

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