When it comes to land development, we’ve all heard of the big, well-known companies who are active in the BC market: Aquilini, Bosa, Beedie, Omni, etc. It’s no secret that companies like these have grown wildly successful by acquiring land, developing, and leasing/selling buildings and/or strata units. There are, however, many smaller entities out there doing what these guys do, but on a smaller scale and still building substantial property portfolios and wealth.
Let’s start with the “Pro Forma”. This is the document with the math that calculates the projected profit based on all the necessary inputs (land cost, construction cost, sell price, timeline, etc).
Pro forma snapshot for 2-acre development in the lower mainland:
PROJECT INFO:
PROJECT PRO FORMA:
You’re probably looking at the above and thinking, “That looks great, but who the heck has an extra 17 Million dollars sitting around?!”. Well luckily, that’s not what is required…
It’s true that most developers who are intending on selling/leasing the entire building to others may have to put up 25% - 50% of the total cost in order to get financing for the remainder. However, if you have a small business in Canada and are in need of a new space for your own purposes, the building could be classified as “owner-occupied”. In this case, there are banks that will do “high leverage financing”, meaning that you can get up to 100% of the build cost financed (in other words, you’re not out of pocket anything).
The first step in the process is to find a piece of land that suits your needs, and depending on your location, this can be the hardest step. Having a knowledgeable commercial realtor is the best way to approach this (this is NOT the person you worked with to buy your first condo!).
Before you go jumping into the first chunk of land you lay eyes on, there are a few things to consider:
What size do you need? This will largely be driven by how much building area you need, the type of traffic you’ll have on-site and its flow, and whether you require yard space for outside storage or operations.
Zoning!!! Don’t buy a piece of land that’s designated for commercial use if you need an industrial use building. Rezoning is sometimes an option, but the viability of this should be determined prior to putting in an offer.
Are there any unusual setbacks, right-of-ways, or environmental issues?
This is often where Colony provides the most value (and at no charge). We can help to advise on things like constructability and build costs for a specific site and can even make up a preliminary model of your building for you.
Seasoned developers are pros at squeezing every ounce of profit out of the land they own. There are many ways of doing this, but the most important asset in this process is a builder and design team who are creative and who understand developing. By thinking outside the box, developers can turn great profits into unbelievable profits.
Here’s a pro forma that utilizes the same 2-acre site as above, but instead of building a standard building, we designed a “high density stacked” industrial building, which fits way more building area on the same site:
PROJECT INFO:
PROJECT PRO FORMA:
If you are into investing you will be thinking in terms of an annualized Return on Investment (ROI). Depending on the municipality and their permitting requirements, these projects average 1.5-2.0 years. If you factor that into an annual ROI, you quickly see what an amazing investment this is and why there are so many people getting into developing.
Keep in mind that in both of the above scenarios, the profits are based on selling the entire building/all strata units. If you’re planning on keeping a portion of the building for your own business, the profit would go down, but you would end up getting your strata unit for free at least, if not with additional profits as well.
As both a developer and a builder for ourselves and other developers, we at Colony understand all aspects of developing and we will happily build a pro forma for you and connect you with any of our trusted real estate agents, financing partners, and/or building designers to get started.
One of our Core Values is “Happy to Help!”, so give us a call and we’ll see what we can do to get you started.”
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