Major Mixed-Use Development – Strategic Real Estate Consulting

Through a referral, we were asked to assist in quickly locating properties to acquire as replacement investments under 1031 rules.  The acquisitions would have to be closed quickly after the sale of the client’s large parcel of suburban farmland.  We conducted intensive discussions to determine the client’s investment objectives regarding preferred property types and locations, tolerance for debt, income targets, diversification, etc., and began a nationwide search for properties.

The sale of the client’s farm fell through when the buyer failed to obtain the necessary capital, and the client asked for further assistance in finding a new buyer.  The replacement-property acquisition process was put on hold.

The farm, strategically located, was large enough to have the potential for multiple uses.  We recommended a study of the farm to determine appropriate uses for its various areas so that the marketing could target the right markets.  For example, a single buyer of the entire farm might be a shopping center developer.  But much of the land was not suited for retail development.  A shopping center developer would negotiate a price sufficiently low so that the residential acreage could be resold at a profit to a homebuilder.  Why not sell the shopping center land to a shopping center developer and the residential land to a homebuilder?

We recommended that the client retain an urban planner to assist in planning the ultimate use of the farm, and identified several planning firms for interviews.  We participated with the client in those interviews and Camiros Ltd was selected.  We then began the process of analyzing the municipality’s Comprehensive Plan, meeting with local officials and the Economic Development Corporation, and working toward a plan that would be acceptable to the municipality, physically attractive, and financially successful.

In the course of this process, Rutledge Company was approached by a major retailer seeking over twenty acres for a large store.  This changed our perception of total retail space demand and led us to revise the plan to provide for more retail development.  A sale to that developer was negotiated, consistent with preserving the value of the remainder.  This required consideration of placement of this retailer within the entire farm, physical and competitive restrictions on development of the remainder, signage, access, and many other factors.  We could not damage the value of ninety percent of the farm in order to sell ten percent.

By now, Rutledge Company had recommended legal counsel to assist with both the necessary zoning and the negotiation of legal aspects of the sale contract.  Additionally, civil and traffic engineers, a surveyor, and an appraiser were added to the team.

The planning process demonstrated that some of the land was too far from the highway frontage to be effective as retail space.  This land adjoined a homebuilder’s project and, for maximum efficiency of land use, needed to share common drainage and detention facilities.  We entered negotiations and sold that acreage so that it could be incorporated into the homebuilder’s plan.  Again, preservation of the value of the remainder was vital.

Upon the sale of the land to the homebuilder, the client decided to reinvest a portion of the proceeds in 1031 replacement land.  Rutledge Company, while not directly involved in that acquisition, assisted in assuring that the purchase occurred as intended and that an appropriate lease was negotiated with the farm operator.

It was apparent that the value of the land was being substantially increased by this process, but it was costly.  Liquid financial resources were being exhausted, but the client clearly saw the benefits of the work being done.  Rutledge Company negotiated a nonrecourse bank loan secured by part of the farm to provide working capital.

As word spread about the plans for the land, other prospective retailers appeared.  So too did a wide variety of brokers, wannabe developers, and others.  Rutledge Company provided an insulating buffer between the client and these parties.

As the client saw progress, he decided that he would prefer to retain an interest in the development rather than sell and reinvest the proceeds in other properties with which he was less familiar.  We began a search for a joint venture partner to lead the development, but were disappointed in the demands expressed by those we interviewed.  One developer, however, looked at the current state of the project, with one major retailer in hand and the rezoning well underway, and said, “The hard part is done.  You are down to the fun.  Why don’t you do it yourself?”

With this observation, the client decided against a joint venture and, upon introduction by Rutledge Company, retained The Shaw Company on a fee basis to lead the development.  A major retail leasing firm was retained to assist in identifying prospective tenants.

At this point, the client had become comfortable with a new strategic direction, the team was in place, the municipality was on board, retailers were lining up to take space, and the project was on its way.  Rutledge Company had completed its three-year assignment, one which evolved dramatically over its course.  Beginning as a search for replacement properties to be acquired upon the sale of the farm, it became a strategic planning process leading to the optimization of the value of the farm.

Its success depended on many factors, but one key was the client.  He is a far-sighted individual familiar with the many aspects of project management, is willing to risk capital to create value, is a quick learner, and knows when to rely on his advisors.

 

Rutledge Company LLC

License No. 481.000176

John K Rutledge, Managing Broker

License No. 471.004599

 

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