ᐅ Sell the entire property or opt for a partial sale with reinvestment?
Created on: 10 Jun 2018 13:41
K
kaho674
There is a large property in the family located in the center of Dresden. It is a residential area—surrounded by 6-story or even taller new apartment buildings. The land is currently occupied by a very old factory building. The owners do not have the funds to demolish this building and replace it with modern new construction. On the other hand, the ongoing costs and rental income are just about breaking even. If income continues to decline, the property could financially ruin the family.
So the question is what should happen with this "factory land." It is quite certain that it could be completely redeveloped since there are multi-family buildings all around. Adjacent to this land is the family’s own business property (including land), which is not intended to be sold as it is their livelihood.
The immediate idea was, of course, to sell the entire factory land. Its value is estimated at around 1-2 million (minus demolition costs), without going into details here. The money could be taken, divided among the family, and essentially spent without long-term benefit.
However, there are also grandchildren who are struggling to establish themselves in Dresden. The family would like to support them over the long term and believes that a rental property would be ideal. Coincidentally, the grandchildren are trained in property management and could help oversee the project.
So the idea came up to sell only part of the land to gain liquidity, demolish the old building, and construct a multi-family house—ideally in collaboration with an investor who would buy and develop the other half. Of course, everything would need to be carefully calculated to see if this is feasible and if the land will generate enough value.
Is something like this possible, or is it just a scam? What would you do?
So the question is what should happen with this "factory land." It is quite certain that it could be completely redeveloped since there are multi-family buildings all around. Adjacent to this land is the family’s own business property (including land), which is not intended to be sold as it is their livelihood.
The immediate idea was, of course, to sell the entire factory land. Its value is estimated at around 1-2 million (minus demolition costs), without going into details here. The money could be taken, divided among the family, and essentially spent without long-term benefit.
However, there are also grandchildren who are struggling to establish themselves in Dresden. The family would like to support them over the long term and believes that a rental property would be ideal. Coincidentally, the grandchildren are trained in property management and could help oversee the project.
So the idea came up to sell only part of the land to gain liquidity, demolish the old building, and construct a multi-family house—ideally in collaboration with an investor who would buy and develop the other half. Of course, everything would need to be carefully calculated to see if this is feasible and if the land will generate enough value.
Is something like this possible, or is it just a scam? What would you do?
Let me summarize
Factory ruin with environmental liabilities
Environmental liabilities are not always just asbestos but contaminated soil caused by decades of seeped operational chemicals of all kinds.
Market value between 1 and 2 million?? That's quite an unrealistic range.
Relatives working in property management, but no one who has roughly calculated the project?
If the area were truly attractive, one of the nearby developers would have already shown interest.
Could it possibly be purely an industrial zone?
Factory ruin with environmental liabilities
Environmental liabilities are not always just asbestos but contaminated soil caused by decades of seeped operational chemicals of all kinds.
Market value between 1 and 2 million?? That's quite an unrealistic range.
Relatives working in property management, but no one who has roughly calculated the project?
If the area were truly attractive, one of the nearby developers would have already shown interest.
Could it possibly be purely an industrial zone?
N
nordanney10 Jun 2018 19:24As a project financier, I have to agree with Egon12 (but what about existing contamination?).
My suggested approach is:
1. First, clarify the actual value of the plot. If necessary, have an appraiser carry out a residual value analysis.
2. Determine if the plot can be subdivided.
3. Clarify the building possibilities and submit a preliminary inquiry regarding the building permit / planning permission – you might even be able to do this without an authorized architect or planner.
Only after completing steps 1-3 should you start considering what is possible.
It might turn out, for example, that the plot isn’t worth much, so a partial sale wouldn’t bring much equity and financing would have to be largely debt-based. Or the opposite. Or…
If the location is really so attractive and the surrounding multi-family buildings have been profitable for project developers/investors, I wonder why you have never received an inquiry for this plot. In eastern Germany, Dresden is truly one of the few places where regional and national project developers/investors are willing to invest.
My suggested approach is:
1. First, clarify the actual value of the plot. If necessary, have an appraiser carry out a residual value analysis.
2. Determine if the plot can be subdivided.
3. Clarify the building possibilities and submit a preliminary inquiry regarding the building permit / planning permission – you might even be able to do this without an authorized architect or planner.
Only after completing steps 1-3 should you start considering what is possible.
It might turn out, for example, that the plot isn’t worth much, so a partial sale wouldn’t bring much equity and financing would have to be largely debt-based. Or the opposite. Or…
If the location is really so attractive and the surrounding multi-family buildings have been profitable for project developers/investors, I wonder why you have never received an inquiry for this plot. In eastern Germany, Dresden is truly one of the few places where regional and national project developers/investors are willing to invest.
kaho674 schrieb:
Is something like this even possible, or is it just a scam? Why choose one or the other? It can be both! The family believes they are sitting on a "treasure" they don’t want to give up easily. However, without external help, it can’t be recovered. Professional treasure hunters will mercilessly exploit any gaps in knowledge to secure the largest possible share for themselves.
So it’s more a matter of individual characters and their willingness to take risks. If the semi-informed grandchildren are eager to gain experience and are ready to fully commit, why not. Those who are cautious and pessimistic should rather sell completely and start small from scratch.
As long as the property is free of encumbrances, it should not be difficult to find a bank willing to finance such a project.
The question now is what can be built on the land and how the six owners/heirs want and are able to divide the work. It is unlikely that the family can simply split the income six ways while two or three manage the apartment building. The division of labor and compensation will need to be discussed. Managing that many units is not something that can be done casually on the side.
However, this definitely represents an opportunity for your family to take a significant step toward a secure future. I would not consider selling it.
The question now is what can be built on the land and how the six owners/heirs want and are able to divide the work. It is unlikely that the family can simply split the income six ways while two or three manage the apartment building. The division of labor and compensation will need to be discussed. Managing that many units is not something that can be done casually on the side.
However, this definitely represents an opportunity for your family to take a significant step toward a secure future. I would not consider selling it.
N
nordanney10 Jun 2018 20:46munger71 schrieb:
As long as the land is free of encumbrances, it should not be a problem to find a bank willing to finance this.
Now the question is what can be built there and how the six owners/heirs want and are able to divide the work. It surely won’t work within the family to split the returns six ways while only two or three take care of the apartment building. The issues of division of labor and compensation will need to be discussed. Managing that many apartments doesn’t happen on the side.
But definitely, this is an opportunity for your family to make a significant step toward a secure future. I wouldn’t sell it. Well, if the land really has a market value of 2 million (approx. 2 million) and you want to build several six-story buildings on it by yourselves, it won’t be easy even with a bank. The land value share of the overall project is estimated at about 20%, so total investment costs around 10 million (approx. 10 million), resulting in debt financing of 8 million (approx. 8 million).
Lending 8 million (approx. 8 million) to real estate amateurs, just like that (who would provide a reliable cost overrun guarantee? External project controller appointed by the bank? Is it tax efficient? Non-recourse special purpose vehicle?), not many banks do that anymore. Also, the family does not want to take on high debt.
It’s roughly about 8,000m² (86,000 sq ft). If I assume 200 euros per m² (around 19 dollars per sq ft), that would put us at 1.6 million. The question is why no one is knocking on the door. I’m afraid the old factory building is quite off-putting. It’s still in use, so maybe no one realizes it’s not really needed. But you’re right, whether it’s really worth that much should definitely be clarified first. Maybe we’re totally mistaken – but I wouldn’t call it a “treasure” in any case.
I don’t expect any significant environmental contamination with this building. It was neither a chemical plant nor a gas station, and no asbestos or anything like that was used. But it definitely needs to go, and it’s quite large.
If we sell the whole thing, the immediate question is: what to do with the money? Put it in the bank? Ha! Build a house for the grandkids? Try buying attractive building plots in rural areas around Dresden! (It has to be in the countryside.) They’ve already tried – no luck. Invest it? Sure, that’s the idea! But we’re not really into gold or paintings.
Nordanney is probably right. We’ll first have to gather some information and then take it from there.
I don’t expect any significant environmental contamination with this building. It was neither a chemical plant nor a gas station, and no asbestos or anything like that was used. But it definitely needs to go, and it’s quite large.
If we sell the whole thing, the immediate question is: what to do with the money? Put it in the bank? Ha! Build a house for the grandkids? Try buying attractive building plots in rural areas around Dresden! (It has to be in the countryside.) They’ve already tried – no luck. Invest it? Sure, that’s the idea! But we’re not really into gold or paintings.
Nordanney is probably right. We’ll first have to gather some information and then take it from there.
Similar topics