THIS IS MY 105TH BLOG ON UNDERSTANDING MONEY
TOOLS
In this blog we are going back into the real estate industry
with some practical advice.
I have frequent coffee with a good friend who is a major
real estate broker for larger land acquisitions and inner city
redevelopment. Recently, he
expressed how difficult, time consuming and competitive it is to get these
assemblages together for presentation to a builder group. I won’t get into all
the levels and stages there needs to be for this to happen but it includes
governmental agencies at the federal, state, county and city levels. It also
includes rough projections on costs, perhaps demolition of existing buildings
and re-zoning. Been there, done
that, and it has only become more difficult with bureaucracies than easier.
I related to the same type of situation we had 35 years ago
in the oil and gas industry when it was “hot” in the late 1970’s and up until
mid-1980’s. The same resolve can
apply to real estate development and other industries. In oil and gas it takes many months to
years to lease up desirable acreage for mineral rights, and then do proper
geologic and geophysical studies, permits, approvals, etc. to prepare for
drilling. What we did was approach
the subject from a two-pronged point of view separating the first steps
mentioned above from the actual drilling aspect. In those days we formed a partnership, today it would
probably be a Limited Liability Corporation. Along with major financial partners we raised millions of
dollars, then leased up hundreds of thousands of preliminarily analyzed acreage
and mineral rights.
When our geologic department had identified drilling sites
on certain acreages this partnership turned the mineral rights over to our
exploration drilling entity with a carried interest and recouping costs. The same can be done for real
estate. In my friend’s situation I
recommended that he take a fee for brokering the transaction to the first LLC,
a management fee and then another brokerage fee when selling the land off to a
builder.
In today’s world it is all about control. Without control
you can waste a lot of time and money and end up with nothing.
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