Fee development - residential land
We have always done development for our own projects, but we've been asked to run development services for a client. We will be responsible for managing the full entitlement process as well as all horizontal construction to deliver build-ready lots for the vertical GC.
I'd like to know what others are charging on a per lot basis and/or a percentage of total development cost basis. This is a straight forward contract arrangement - there's no carry, promote, sponsor situation.
TIA!
There's typically a lot of spread in these projects, especially in unentitled land. Think of it this way - if you bought raw land zoned ag or whatever and entitled it all the way to shovel-ready for a homebuilder to come in, you'd be recapitalizing it and potentially marking up the land millions of dollars. On top of that, you would then charge a market development fee for managing the horizontal improvements, which could be 3-5% of total cost or total sellout value.
Obviously not sure what the contour of the deal is here but the value of what you're providing may look egregious in fee format. Obviously you're not taking the land risk but given that it's unentitled land I assume the land basis is pretty nominal in comparison to the rest of the project budget. You're basically acting as the sponsor and trying to capture a sponsor's value-add in fee format, which may prove difficult.
I appreicate your feedback.
What we are discussing at this point is 5% of costs to take a project from unentitled to shovel-ready and 5% of costs for civil construction management.
This is reasonable in my mind.
5% is market from what I’ve seen
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