Land Assembly Logic
Is the land under your property more valuable than the property itself? This premise may be counter-intuitive to you as the property owner. How can the dirt be more valuable, sometimes much more, than the entire improvements, which provide a steady rental income?
The answer is simple. Land is a finite commodity, there is not going to be any more of it. We live in a landlocked city with the mountains and ocean presenting insurmountable obstacles to potential development. We now have to look skyward to create new housing opportunities.
Land assembly is a very complicated process to all parties involved, except for the individuals or company who own the land for sale. To you, as a land owner it should be a simple function of price. The improvements are worthless in a land assembly deal. It could be condemned, or completely renovated; to a potential developer it’s just dirt. The major factor, besides location, that will ultimately determine your value is the floor area ratio (F.A.R). This gives a general indication to the size of building the City will allow on your property. The higher the F.A.R, the higher the land value. There are certain restrictions and requirements to maximize the F.A.R, thus maximizing the value of your land, and overall profits to you as a land owner. For example, the City of Burnaby requires a minimum of one acre of land to assemble a high-rise site. This can equate to needing up to five or more properties packaged together, in order to maximize the value of your land. In this packaged assembly all properties are created equal. The only differentiating factor of your property, versus your neighbor, is the size of land you have for sale. Therefore, without your neighbors, your property could potentially lose value or not qualify as a high-rise site at all, and vice-versa. In land assemblies it is common for the property owners to argue that their property is worth more because of its location within the assembly, they have the most updated building, or they have the biggest plot of dirt and deserve a higher price per square foot for the land. While these may be true, they are mute points. The only value is in the land and all the land is exactly the same in the eyes of a developer.
Some landowners have heard stories of other people getting massive prices for their properties that equate to almost double the value of the property as an apartment building. It is true that the land value of your property as a high-rise site is significantly higher; however, a misconception leads many apartment owners to hold out for huge amounts of money. The general mentality is to hold out, with the reasoning that the projects are so large the developers have virtually unlimited funds to pay landowners. The truth is your land may be a very valuable commodity, but like everything else in a supply/demand market, there is a market price.
Developers have a very tight budget, with every dollar meticulously calculated and accounted Disclaimer: This article contains information available to the public and NAI Commercial accepts no responsibility if this should prove not to be the case. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein. for. If the numbers do not work because you are holding out for an above market price, than they will move on to another project. Just like if you are selling your apartment building, the land price will eventually have to come to market value, or the market value will eventually have to reach your price for the land.
So now that you understand the process and pricing behind development sites a little better, you may be wondering how do I cash in?
Two really hot areas in 2014 were Marpole in Vancouver and Metrotown in Burnaby. Both areas have a new official community plan, which allows for upzoning in specific areas designated by the City. Marpole's main focus was turning single detached homes into six storey condominium buildings. This allows for small increases in the current housing stock within this part of the City, without significantly changing the landscape of Marpole. Metrotown has been a really hot area for development. The City has designated many areas for new highrise sites, which has completely modified the feel of the area and moulded it into an up and coming metropolitan community. Qualex-Landmark, an established Canadian real-estate developer has been building these kinds of projects across Canada since 2001. We discussed with them these unique opportunities for property owners and how land assemblies represent great opportunities for developers and property owners.
"Through assemblies, developers are able to create vibrant new communities from properties that may otherwise have not been viable for redevelopment. By participating in assemblies, owners can maximize the highest and best use of their properties, thereby increasing the value of their land" says Cyrus Navabi, Vice President of New Development. There has been an opportunity for many landowners to cash in for a value significantly higher than as an apartment building. The new community plan in Metrotown is subject to change before it is implemented. This means that there is still an opportunity for current landowners to be upzoned in the near future. We do not know when this will be, but we are very engaged with the City planning, and will be the first ones to know. You should be aware, If you own an apartment building elsewhere, a new official community plan may be implemented that affects the value of your property, and an opportunity awaits.
Article Written by - Brandon Harding*
Business and Economics degree with the University of Victoria, Representative of NAI Commercial Multifamily and Land Development Division, can be contacted for more information at email@example.com or (604) 691-6680
NAI Commercial 100 - 535 Thurlow St, Vancouver, BC Tel: 604 683 7535
Disclaimer: This article contains information available to the public and NAI Commercial accepts no responsibility if this should prove not to be the case. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein.