Developers offer on my property

GDB2222

This does remind me of Deal or No Deal, on TV, where contestants often take somewhat derisory offers, rather than risking getting nothing. 

Anyway, I hope the op gets professional advice from a surveyor or land agent, even if that just reassures him about taking the offer on the table.

Adam16

GDB2222 said:

Adam16 said:

As a large scale property developer, I’ll give a simple answer. 

Take the money. 

Thats a solid offer for an option agreement and subsequent purchase of what is essentially a ransom strip. 

Get them to pay your legal costs, and make sure its watertight. 

Most people offering advice here likely have no experience of property development on this scale, how developers think, and how to negotiate.

Starting with the basics… don’t look a gift horse in the mouth. 

If, as a developer, you were looking at a potential profit of say £15m from getting planning permission, what would be your absolute maximum for the ransom strip? 

I assume that you would be sharing the £15m with the farmer, but even then you might feel it worth getting out of bed for. Would you just walk away from this, or would you prefer alternatives, such as trying to get the council interested in a CPO?

Oh, and if you do get the council interested in a CPO, why would they stop at the access ransom strip? They might as well buy the farmland, too, and cut the developer out of the deal. Farmland without PP or access would not have a lot of hope value, perhaps?

Just work the basic numbers through

• 150 houses, at say 900ft2 average size with an average £350/ft sales price = £47.2M revenue
• Assume construction costs including roads etc. @ £220/ft = £29.7M
• Marketing, sales, head office costs on top... say £10/ft = £1.4M
• Finance costs for the loan I'll need to cover 75% of my costs (assuming you can get that type of loan-to-cost) is another 5% so circa = £1.2M
• That leaves me with £14.9M profit before land & tax.
• The landowner will want say £25K/plot, so that's £3.75M...
• Leaving £11.15M profit on costs, or 23.6%.

Most developers are targeting 20% profit currently, which equates to £9.5M in this case... so that would leave £1.65M on the table for them to pay the ransom strip and still hit a 20% margin. 

They're offering £100K just for the option, and 2x the property value in 5 years which assuming the £600K house increases to £800K in that time would be £1.7M total. 

They might have a little more in the tank to offer, but the offer they've put forward in my eyes is fair. 

I've secured option agreements on whole plots of land of 300+ units for less. Considering this is just a ransom strip, I'd bite their hand off provided the legals are tied up right.

Ignore the CPO talks.. red herring

Section62

GDB2222 said:

If the council do use their CPO powers to buy the ransom strip, what price would they sell it to the developer for? Why sell it for less than a few million, if that’s what it is worth to the developer?

"It depends".  Most things are negotiable, with plenty of quid pro quo.

Councils benefit from house building, even if the main profit accrues to the developer.  E.g. from increased Council Tax receipts, greater population for funding formula calculations, and from S106/CIL type payments.

GDB2222

Thanks, Adam. It’s good of you to take the time to reply in detail.

Section62

Adam16 said:

Ignore the CPO talks.. red herring

On what basis do you say that?

getmore4less

Have you checked planning to see if there is anything there and what else is going on around you

If you have the map view option it can be easy to see if there is any history.
Sometimes a rejected proposal with reasons why gives clues to what options are available for access.

The key is to secure the cash and make sure there is no overhang on the timescales.

Have you talked to everyone else along the road that backs onto the field.

Adam16

Section62 said:

Adam16 said:

Ignore the CPO talks.. red herring

On what basis do you say that?

They wouldn't have even put the offer on the table if there was a chance they could get a CPO.

Notoriously difficult unless its public/infrastructure projects, or there's a dire public need in some other sense...

Section62

Adam16 said:

Section62 said:

Adam16 said:

Ignore the CPO talks.. red herring

On what basis do you say that?

They wouldn't have even put the offer on the table if there was a chance they could get a CPO.

Notoriously difficult unless its public/infrastructure projects, or there's a dire public need in some other sense...

There's certainly risks of delay and uncertainty with a CPO, and a cash inducement is a good way to bypass that.  But ultimately a CPO is a way of achieving the developer's objective if the OP overplays their hand, and for all we know the developer may be pursuing both strategies.

With the limited information the OP has been able to share there is not enough information to work out whether or not there is a 'dire need' and what support the local council may be willing to give the developer.

You are a large scale property developer.  I've worked for local authorities facilitating large scale developments, including through the use of CPO.  I'd say the OP needs professional advice from someone local, and needs to be wary of overplaying their hand. In part because the developer may have other routes - including CPO - they could pursue.

eidand

wish I had an offer like that, I'd sign in an instant

movilogo

So OP has an option to get £100k for nothing and not sure whether to accept it or not?