How do developers model multi-phase developments?
For example, say Prologis buys a large site and plans to develop four buildings over time, each one starting once the previous is stabilized. How is the land viewed across each development? Is all of the land cost baked into the first building? Wouldn't that cause the first building to look mediocre, or even cause it to not pencil, while the other three look great with no land cost?
If you can somehow allocate land cost to each phase, what happens if you build the first building, then market conditions shift and you're unable to build the other three?
How does holding land for multiple phases work from a debt perspective? Is the cost to carry the land for multiple years baked into each phase as well?
If they're being built after each prior one stabilizes, typically you'd just underwrite them one at a time and allocate the land cost. The first phase might have some front ended costs for site servicing.
If they're being built simultaneously, with overlapping periods, or if it's two towers connected by a podium (in these cases it would be a staggered development, not phased), then you might have a model set up that has inputs for both buildings and separate cash flows that flow up into a total parent cash flow, and assume the stabilization/exit date is when the later building is stabilized.
I'm sure there are dozens of ways to do this, but generally speaking you'd subdivide the land into however many parcels are needed for development and finance each phase separately, with land cost assigned pro rata. Obviously you're stuck carrying the additional land, but presumably the carrying cost is low, especially in non-urban markets. Tax on vacant land usually isn't crazy, and unimproved dirt isn't always super expensive, especially if it isn't fully entitled.
So yeah, you'd take out your land loan with a construction loan (or fold it in, really) and then replace all of it with perm debt once you have a certificate of occupancy, then move on to the next phase.
To your overarching point, you probably do end up compressing a fair bit of the soft costs into that first phase, but nothing crazy. And yes, if the market turns, you'll lose. That's why taking on gigantic multi-phase developments is a huge risk. Though of course if the market improves then you're out phases will be home runs that you tied up at well below market pricing. That pretty much applies to any real estate deal, ever.
Someone's going to look back on this years from now looking for advice, so my one comment is fuck subdividing and just condo it. Subdivision triggers a reassessment and some jackass tax assessor can come in and tell you the land is worth more due to a) more entitled as you progress the overall project or b) due to density and development on adjacent parcels it's worth more.
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