Raw Land Development: What is It?
Ultimately, raw land development is an investment strategy. While it’s often referred to as a complex investment strategy, it’s not necessarily out of reach for beginning investors. Raw land development usually refers to one of two things: purchasing land with the intent of building on it or purchasing land with the intent of keeping it in an investment portfolio for long-term appreciation. Whatever the intent, investors in Lacey have plenty of opportunities to participate in raw land development and add to their portfolios.
Seven Stages of Raw Land Development
Again, raw land development is a complex investment strategy. There are a lot of moving parts to the process, but with guidance and a reputable commercial development contractor, beginning investors are capable of taking on a raw land development project. Here’s a brief overview of the steps involved.
The land banking stage refers to the acquisition of undeveloped land. An individual may purchase or own this land, but undeveloped land often belongs to estates, public utilities, or government agencies. This stage of the raw land development process is the most passive stage. For example, common land bankers include inheritors of family land and universities. When the market lines up for the land banker, they sell the land to a land packager.
The land packager purchases land from the land banker. Then, they increase the value of the land by implementing various zoning changes or financing schemes. Common ways to enhance the land include purchasing title insurance and conducting accurate surveys and environmental surveys. Land packagers are typically lawyers, government agencies, or firms dedicated to land planning. After the land has been “packaged,” the land packager sells it to a land developer.
The land developer purchases land from the land packager. Then, they improve the land so that it can be sold to a building developer. These improvements commonly include infrastructures such as roads and utilities. For example, consider mast
er-planned community developers who construct roads, rec centers, and utilities on otherwise undeveloped land to then sell individual lots to home builders. These bundles of land are often referred to as finished building pads.
The building developer, such as a merchant builder or a home builder, buys finished building pads from the land developer. Then, they complete the land’s vertical development by constructing buildings. Building developers may attempt to lease the structure so that the building operator can purchase the finished building.
The building operator leases and manages the vertically-developed property. During this stage of raw land development, building operators manage the property and develop an operating history so that other building operators may purchase the property during its economic life. However, if the property stays with one building operator, the operator may choose to sell the property to a property renovator at the end of its economic life. Large-scale building operators include institutional investors such as pension funds, insurance companies, or real estate investment trusts.
The property renovator purchases a property at the end of its economic life with significant economic or physical depreciation. Property renovators improve the property by addressing any deficiencies and operating the property until they sell it to a redeveloper. Companies that specialize in historic renovations are typically the most suited for property renovation, but another example of a property renovator is shopping center renovators. Shopping center renovators search for old shopping malls or other centers to redevelop and market to new retailers.
A property redeveloper purchases properties with severe physical or operational deficiencies. In these cases, the property redeveloper demolishes or redevelops the property for another use. Consider the land development process as a cycle. The land redevelopment stage is the hinge between the end of one cycle and the beginning of another. The largest property redevelopers are typically government-sponsored agencies that have properties assigned to them after any tax foreclosures.
The Cyclical Nature of Land Development
The land development process is a cycle, and these seven stages may play out over several years or decades. In each stage of land development, investors and developers commit capital and take risks to increase the value of the property. It’s unlikely that any single entity or developer has the resources (both in terms of capital and skill) to complete every stage alone. The risks involved with taking on each step of the development process are too high for most developers.
How Can Kaufman Construction & Development Help?
Kaufman Construction & Development is a commercial general contractor centered in Olympia, Washington. Our company leases over 1 million square feet of warehouse, office, and retail space throughout the Lacey area. For investors interested in purchasing land for development, Kaufman Construction & Development also has a comprehensive property management team with experienced team members specializing in land development. Whether an experienced investor is looking for commercial property to diversify their portfolio or a beginner is looking to invest in a commercial building for the first time, Kaufman Construction & Development can help make dreams reality.
Additionally, Kaufman Construction & Development specializes in design-build services for customers who need custom commercial property. Whether our customers are looking for office space, a commercial building, or an industrial space, our dedicated team of experienced professionals can help with every step of the process from idea to construction and operation. Contact us today to find the best space for your growing business or investment portfolio!