Entitlements are time consuming and generally set the critical
path for building delivery. For instance, for California approvals,
one to three years is common and it can take five years if an
Environmental Impact Report is required. The entitlement
process is becoming more expensive because local agencies are
shifting more of the infrastructure costs on to the developer. In
many parts of the country building warehouses is not favored by
the local community. A Nimbyist reaction to large warehouses
puts additional constraints on land supply.
Because of the large costs entitling and improving land, there
is a big difference between buying wholesale, unfinished lots
compared to selling retail, finished sites. Most non-professional
land sellers have no idea what it takes to entitle and develop large
sites. It’s clear because when land prices are being discussed, there
is a lot of confusion about development and entitlement costs.
This is a typical obstacle in land negotiations when describing
what costs go into a land development.
ADVICE TO BROKERS
In advice to brokers, the developers emphasized the importance
of communicating the difference between retail and wholesale
prices to seller clients. If sellers want to entitle and install the
infrastructure themselves, developers would prefer to pay the
higher price. Brokers should know all the costs and they should be
able to run the proforma themselves. Brokers need to understand
site coverage, all the infrastructure costs, and 'what goes under
Brokers should know the details of their markets. In order to sell
land, developers want to know rental rates, building costs, lease
up time, tenants in the market, vacancies, absorption, supply,
demand, and size of market. The information should be easy
to understand because it will also be shared with partners and
lenders. Developers tend to return to the brokers when they have
had the most success.
To answer the main question, ‘where are the deals?’, land deals
are everywhere: infill and greenfield; and as one developer said,
it’s likely in your pocket if you look carefully enough.
ABOUT THE AUTHOR: JIM KLEIN,
By Jim Klein, SIOR
SIOR, has been an industrial real
estate broker and investor in the
greater Los Angeles area for more
than 30 years. He also serves
manufacturing and warehousing
clients throughout the United States.
His specialty includes larger in-fill
land sites, big industrial, building
tear downs, and redevelopment.
Jim blogs about his views and local
real estate trends. He served as President of the SIOR Los
Angeles Chapter, and was recently appointed Chairman of
the Land Specialty Practice Board.