By Darryl McCullough
Senior Partner
COUNSELING SINCE 1972
5 MIN READ
This paper is educational material drawn from real transactions. It is not an offer of securities, and it is not tax or legal advice for your situation.
Land Assembly Formula
Seven homeowners, one developer, and a formula that gave every family the same premium. Today it is a 360-bed student housing project.
FIRST PUBLISHED JANUARY 9, 2019; ADAPTED FOR THIS LIBRARY.
A while ago I had the privilege of working with DBM Realty Limited, Brian Mortell and his son Colin, through a very interesting and creative land assembly. The journey went as follows.
The location
A substantial housing gap had emerged in a sub-market that needed to house doctors, nurses, support workers, and students, driven by a large and growing regional hospital and a well-established, growing college.
The properties
Across from the hospital, just down the street from the college, sat seven independently owned residential homes. Knowing the official plan called for intensification, initial concept plans were drawn to determine potential building types and gross floor area. A local planner was engaged for further suggestions on highest and best use.
From that, collective valuations for all seven properties were prepared, assuming municipal support for new vertical development. The assembly was then valued as a whole. Which raised the question: how could each homeowner be confident of receiving an equitable share of the collective value?
The homeowner process
We met individually with each owner. All seven homes were owner-occupied. We reasoned with each that the collective value of their properties far outweighed what any of them would get selling alone. All that was needed was for everyone to buy in and let a qualified developer pursue municipal approvals.
To make sure everyone felt the process was fair, an appraisal of each home was carried out on the same day by the same independent appraiser.
We then met with each homeowner again and walked through all seven as-is appraisals, and how they compared with the financial gain available as part of the larger assembly. Everything was fully transparent. To give each owner fair value, we took the assembly value and divided it by the aggregate of the appraisals. That produced a premium factor applied equally to every home. If the assembly value divided by the aggregate appraisals came to 1.25, every homeowner received a 25 percent premium on their as-is value.
The developer process
A qualified developer, well known to the Mortells, was approached to gauge interest in a future development at the location, which was quickly established, along with what he would pay collectively, subject to acquiring all seven properties and receiving municipal approvals.
The developer, who needed to spend heavily to achieve those approvals, could proceed with confidence because the assembly process was already complete.
The takeaways
The assembly closed with every party satisfied. The homeowners each received substantially more than they would have alone, on a well-planned timeline, with enough time after the transactions firmed up to find their next homes. The developer worked through approvals knowing the municipality was keen to see the concept bear fruit.
Today there is an attractive, active 360-bed student housing project completed and operating, with extra land being developed for apartments and condominiums.
We witnessed first-hand that straightforward, honest negotiation brings out the best in people. There was little shadow-boxing and few hidden agendas. It was a great opportunity to work with quality people throughout.