new housing in Acton

[walkitout]

I was looking at recent property sales in Acton.

http://www.newenglandmoves.com/real-estate/property/80-harris-st-acton-ma-01720/land/mls-70957652/607353?pos=1&search=6db4b29ecb642b924a7bb8b7e54ece89b53ae171

Sorry about that. It works for me and I'm having trouble trimming it. Maybe you can find a better site:

$1,710,000 (Listed for $2,000,000)
80 Harris St., Acton, MA 01720
Land
7.42 Acres | MLS# 70957652

Anyway. Here's what is happening there:

http://www.thevillagesatmonumentplace.com/siteplan.html

From the first page:

"#3 JUST REDUCED Now $529K!!!"

Let's take that $500K as a nice round figure, giving 13.5 million for selling it out. But it isn't cheap to build in Metrowest; how much might they make on this? Here's one way to find out.

Even allowing for maxing out the finishes (which is unlikely), they should still make a couple million; if they don't max out the finishes, they should make even more.

Comments

yes and yes

[walkitout]

I don't know how a project like this is financed. I know what bigger developers do, and it involves multiple partners. There's the local, who knows how to navigate the local regulatory system and is often a small- to mid-size developer. There's the big construction partner -- they are accustomed to the process to putting up this kind of building or buildings and hiring all the subs and the architects and marketing it and so forth. And there's the financing partner. The financing partner is often either part of an international finance corporation (like UBS or JPMorgan or whatever) or possibly a pension system (like any of a number of things named Cal*). I know smaller developers usually buy the land themselves and then get a construction loan to put up the buildings and you are absolutely right that it is dangerous -- development is dangerous on _any_ scale. This is why banks and people like UBS and so forth wind up with portfolios of real estate: the developer didn't quite make it work (at least one super tall residential tower in Bellevue went to the financing partner recently). Generally -- but not always -- the financing partner sells their portion in chunks to investors, usually through a wealth management business on the retail side, but sometimes via securitization through the public bond market.

But this kind of too big to be small and too small to be big -- it looks like Bentley is doing the whole thing themselves -- is probably done with a combination of Bentley's cash and community bank financing. I'm pretty sure that's how Lorig did things for a long time and I know that's how some of the smaller, architect led infill development happening in, say, Capitol Hill is being done now.

On big developments (historically almost all commercial real estate, but with big residential developments happening in cities, it includes big residential as well), the financing for this stuff requires no payments for the duration of the loan -- interest is ballooned out to the end. When those blow up, it's hard to extend, the loan to value is probably already unfavorable (especially if the blowup was due to overall market conditions) and get worse before it gets better.

Hopefully that wasn't way more than anyone wanted. Everyone feel free to chime in to correct errors. It occurs to me as I type this that part of my innate sympathy for developers is because I feel like a lot of the people carping about development have no idea how devastating it will be if things don't go according to plan. Developers expect a certain amount of pushback and plan for it, but when the pushback is a lot more successful or categorically new and different, it destroys people. People like Selig in Seattle can recover (or, for that matter, Trump), but it isn't easy and it's sort of sad.