Ground-up development is an asset class that can be very enticing to a lot of investors. But as an investor, you need to be asking these questions: does the land still need entitlement? Is the land already zoned? Is this actually feasible? Moreover, as a potential investor, you need to understand exactly the details of the project.
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In this second part of our conversation with Andrew Brewer of Iron Gall Investments, he talks in detail about ground-up development. He differentiates this asset class from value-add and explains why there seems to be confusion between the two. He also elaborates on the steps of the development process, the key factors and risks to consider, and the things a passive investor needs to know before investing in one. Listen now to our #TechandTacticsTuesday episode and enhance your knowledge on ground-up development today!
Key Points From This Episode:
- Andrew differentiates ground-up development from a value-add.
- The multiple steps in ground-up development.
- The different factors to take into account when doing a ground-up development.
- When do you own the land versus when you’re looking at the entitlements?
- Why does Andrew put a three to six-month due diligence period before moving forward with the development?
- There’s a chance that you will lose earnest money on due diligence.
- What are some of the key factors and risks passive investors need to know before investing in a ground-up development?
- Why do you need to be mindful of the city’s existing plans or when they were done?
- Andrew’s tip: look at the developer’s proforma.
“I focused a bit more on ground-up development. And what is typically meant by ground-up development is, you know, you’re taking a property that is, you know, just the ground, and you are developing it by putting your development up by putting a building on it.”
“So just a little tip out there for people looking at land and trying to get into development, make sure you know what you’re looking at.”
“There is risk in development. I try to take as much of that out before I close on the land as possible.”
“I have lost money and due diligence on deals. I’ve gone into deals, I’ve put up, you know, earnest money, you know, and lost. You know, I’ve lost my earnest money, I’ve lost the preliminary money that I spent on engineering and studies. And I mean, it’s always better to lose that money upfront than to go into a bad deal. You know, God forbid, bring investors into a deal, and then they’re losing money.”
“In my mind, everything is about your risk-reward ratio, which differs per person, right? You know, some people have a little higher risk tolerance, they’re willing to take more risk for less money, other people aren’t.”
“Always take everything with a grain of salt.”
About Andrew Brewer
Andrew Brewer is a real estate investor and developer and is well-versed in all aspects of land development. Andrew has a varied background in real estate and has participated in projects as an owner, developer, operator, engineer, and consultant. During his career, Andrew has acted as a construction manager on commercial reconstruction projects valued at over $12 million each, a consultant in construction defect litigation lawsuits in excess of $60 million each, and an operations engineer in commercial facilities valued individually at over $200 million, and as a developer responsible for directly planning and overseeing multiple ground-up development projects totaling over $160 million in assets. As an operations engineer, he has executed full-building turnarounds of underperforming assets leading to improved operations, lower maintenance costs, and improved resident experiences.
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