Say I am contributing land worth 5m to a development partnership that requires 10m in hard costs. Total investment is 15m.
Since the land value is so high, does this mean I will have to borrow less, and use less leverage? Or can the partnership pay me back for some of the land equity using the loan proceeds and counting the land as a cost?
How do lenders typically underwrite construction loans where land is contributed as equity? Do they use the fair market value or cost basis (my basis is very low, but recently received a high offer).
Thanks for your help.
Yes...and no.
The land price is whatever your LP negotiates to buy in at. You could have bought the land at 2 million 5 years ago and now it's worth 5 million. You basis for a JV investor could be $5 million for the land, so you would get a check and then split the costs via your joint venture split.
The longer you have owned the land the better.
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