First time looking at a certain deal structure for a ground up deal, interested to get the communities thoughts.Deal facts:
- developing on 100 year ground lease- unentitled land.
Developer would sign option and seek to entitle land (which currently has improvements on it)
- upon achieving entitlement, ground lease would start.
The developer would have created value, and incurred time/expense to entitle the land. If the cannot do so, it seems like a sunk pursuit cost, for which they shouldn't be compensated.
If they do, however, and the developer should no longer want to do the deal, then the landowner would owner/control significantly improved land with higher land value.If you were the developer, how would you structure the option such that you are appropriately compensated for your time/effort of entitling the land, but not proceeding with the deal?
Sounds like the developer wants flexibility to walk away and still be compensated. Shouldn't the landowner then be compensated for committing to a ground lease as well? You could structure an assignment fee to find another developer acceptable to the landowner.
Entitlement fee earned upon a successful outcome seems like the simplest option
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