April 10, 2012
25 Ways to Get Your Site Eliminated - #17: Focus Exclusively on Real Estate Price in Negotiation
By: Tim Davey, PE
Remember when negotiating real estate that you need to control either the PRICE or the TERMS of each deal. For example, you can agree to a very low price per acre if the development partner has a stellar rolodex of potential tenants for your park that will generate jobs quickly for your community. You can also offer very good terms on the land if the development partner has a demonstrated ability to deliver high value buildings and investment such as data or fulfillment centers with high value equipment. If you get caught up on a high price per acre, you may lose sight of the terms by which the deal really makes sense for your community. Remember, a mart developer is not usually willing to pay the real estate taxes on the property until such time that it’s “flipped” or generating revenue to their business. Others are only interested in a bargain, a “buy and hold” strategy, or are financially motived by something other than the EDA’s vision for increased real estate taxes, machinery and tools taxes, personal property taxes, and jobs.
Many of our clients have received development proposals from the private sector willing to help get “something started” in a municipal business park. Others have solicited proposals from, and ultimately signed agreements with a private sector partner to accelerate the marketing of and construction of a building on their property. Most of these arrangements agree on specific real estate price and terms that will get executed over time. Although all the potential developers we talk to are willing to option, or “tie up” portions of the site, they are not always willing to commit significant financial or marketing resources to construct real improvements. They may promise a very compelling marketing strategy, but have not demonstrated an ability to actually deliver any tenants to their projects. Very often, their proposal includes a potential up-side to the municipality and to their bottom line, but also includes an “out” for them that might leave you holding an underperforming asset that creates no real estate taxes or jobs.
So remember, always make sure to control either the price or the terms of the transaction….don’t lose control of both. I hope this helps a little and look forward to hearing from you.