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?
C
Caspar20208 Oct 2018 14:31kaho674 schrieb:
He is assuming €1,250 per m² (about $1,350 per sq yd). For 75 residential units x 100 m² (1,075 sq ft) x €1,250, that would be €9.375 million (about $10.1 million). Although this number seems unaffordable for us, I still think €1,250 is a joke.Starting from €5 million (about $5.4 million), these are just numbers with a few zeros.
The question is what you would need to invest to play with the big levers.
If the location is that good, the selling price will be significantly higher.
kaho674 schrieb:
With 75 residential units x 100 m² (1,075 sq ft) x €1,250, that amounts to €9.375 million (about $10.1 million). Although the figure seems unaffordable to us, I still consider €1,250 to be a joke. Sure, with so many apartments there are some synergies, but that much? That makes me very skeptical.Do you have specific, contradicting experience from multi-family construction, or are you comparing these figures to the single-family home sector discussed here in the forum?
Another question is: what does the €1,250 include? I assume that construction site logistics, elevators, underground parking, basements, and additional construction costs are not included, right?
N
nordanney8 Oct 2018 14:40kaho674 schrieb:
He assumes €1,250 per m² (square meter). With 75 residential units x 100m² (1,076 sq ft) x €1,250, that comes to €9.375 million. Although the figure seems unaffordable to us, I still think €1,250 is a joke. Of course, with so many units there are some synergies, but that much? That makes me very skeptical. I don’t see the €1,250 at all; €9.4 million would be a bargain. I would start building immediately for that.
Quick calculation: New build rents in your area are around €10 per m² (about $10 per 10.8 sq ft), so total rental income for the property is approximately €900,000. After deducting roughly 12% operating costs, that leaves €792,000 pre-tax profit. Based on €9.4 million, you could pay an annuity of 8.4%. That’s a great investment for a property portfolio and finding a bank to finance it shouldn’t be a major issue.
Loan-to-value would be somewhere around 14 to 15 times the rent, market value probably 25 to 28 times.
The only problem is you can’t build at that price...
You’re confusing me.
No, I don’t have experience with price per square meter for this type of building. Of course, I initially assume values based on what is generally known. I also didn’t expect the consultant to plan 75 apartments right away. I was rather thinking about around 30.
For now, he has planned quite standard apartments. He says he calculated “conservatively,” whatever he means by that. In any case, I don’t think it has anything to do with the standard most people here plan for themselves – and it doesn’t have to.
We can basically only contribute the land. But the money is not wasted in a construction project – it will be there in the form of apartments, which hopefully won’t lose their value immediately. I wouldn’t rate the location as exceptionally great, but it’s certainly not a rundown area either. Just a normal residential neighborhood.
No, I don’t have experience with price per square meter for this type of building. Of course, I initially assume values based on what is generally known. I also didn’t expect the consultant to plan 75 apartments right away. I was rather thinking about around 30.
For now, he has planned quite standard apartments. He says he calculated “conservatively,” whatever he means by that. In any case, I don’t think it has anything to do with the standard most people here plan for themselves – and it doesn’t have to.
We can basically only contribute the land. But the money is not wasted in a construction project – it will be there in the form of apartments, which hopefully won’t lose their value immediately. I wouldn’t rate the location as exceptionally great, but it’s certainly not a rundown area either. Just a normal residential neighborhood.
N
nordanney8 Oct 2018 15:10kaho674 schrieb:
He has currently designed very standard apartments. He says he calculated "conservatively," whatever he means by that. In any case, in my opinion, it can't relate to the standard most here plan for themselves – and it doesn't have to.I wonder where he gets his experience from...My developers always estimate significantly higher, at least €1,500 per square meter (approximately $1,600 per square yard) net for cost groups 200-500 (you have to pay the gross amount since you are not entitled to input tax deduction for rental properties), plus additional construction-related costs (about 15% of the pure construction costs), plus utility connections, landscaping, parking spaces, construction period interest, and so on.
Maybe you are saving a bit on the shell construction since the envelope is already in place. But it can't be much.
Ok, no. The 1250 is purely for the apartments. All the additional stuff, outdoor areas, planning, etc., is not included. And these are completely new buildings. Demolishing the existing structures alone costs 600,000.
Still, I can't imagine he can manage it for that amount. On the other hand, unlike him, I have zero expertise. The man is a doctor.
Still, I can't imagine he can manage it for that amount. On the other hand, unlike him, I have zero expertise. The man is a doctor.
kaho674 schrieb:
He has planned completely standard apartments for now. He says he calculated "conservatively," whatever he means by that. At first, I thought he had proposed to build exactly 75 apartments. However, it now seems to me that he simply divided the building volume by an average apartment size including ancillary areas, resulting in about 75 units.
However, in my opinion, there is no local market that will simply absorb "75 units" like that. I don’t see a demand for a purely residential building of the outlined size, nor does it make sense that more than six dozen apartments would not significantly differ from each other apart from size. There needs to be a mix of standard and higher-income apartments, and, as a keyword “value added,” options such as assisted living or similar concepts.
In a “major” city, you can’t just dump a few thousand square meters (square feet) of apartments onto the market without creativity—investors focused solely on volume are plentiful, as well as interchangeable offerings. And at city hall, nobody finds it appealing if the hundredth copycat developer tries to cash in without ever considering local “preferences.”
On the other hand, even good property developers can struggle when a family owns a large building. Even in medium-sized towns, you can set your watch by it: when a furniture or clothing store closes, a month later the newspaper reports that the owner family plans to develop a medical center (or a factory outlet center, or a mall)—each time under the illusion that this is completely new and that they are the first with such a groundbreaking idea.
https://www.instagram.com/11antgmxde/
https://www.linkedin.com/company/bauen-jetzt/
Similar topics