Land Development for Landowners: Feasibility, Financing & Risk Explained

Share via:

Subscribe via:

In this episode of the Real Estate Pros podcast, host Michelle Kesil interviews Eugene Gershman, a development management expert. Eugene discusses how he helps property owners develop their land into profitable ventures, emphasizing the importance of understanding zoning laws, conducting feasibility studies, and managing risks. He shares insights on client engagement, the role of technology in streamlining processes, and the investment opportunities available in real estate development. Eugene also highlights the significance of building a qualified team and maintaining open communication with clients throughout the development process.

Resources and Links from this show:

Listen to the Audio Version of this Episode

Investor Fuel Show Transcript:

Eugene Gershman (00:00)
And what we are trying to communicate is that it’s not that difficult. Many people think that development is impossible and super high risk, which it is. If you don’t know what you’re doing, it’s really easy to lose a ton of money by going into development if you don’t know what you’re doing. But so we’re trying to bridge that gap. We’re trying to help them, first of all, figure out what could be built. Second, what the value, the future value is going to be and then structure.

the financing to get the project capitalized, bring in investors if needed, and then bring in senior debt, engage all of the consultants, contractors, and see this process through.

Michelle Kesil (02:09)
Hey everybody, welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil And today I’m joined by someone I’m looking forward to chatting with, Eugene Gershman, who’s been making serious moves, helping property owners turn land into wealth by managing their development process. So, excited to have you on the show today, Eugene.

Eugene Gershman (02:29)
Thank you, Michelle. Excited to be here.

Michelle Kesil (02:30)
Yeah, of course, I think our listeners are really going to take something away from how you’re supporting them to develop their properties and increase their profits. So let’s dive in.

Eugene Gershman (02:42)
Let’s do it. Let’s do it. I love talking about it.

Michelle Kesil (02:44)
Awesome. First off, for those not yet familiar with you and your world, can you share what your main focus is?

Eugene Gershman (02:50)
My main focus is enabling property owners develop their land. We talk to owners all over the country and we see that folks with land who are potentially interested in developing it or who see the development potential, a lot of times they are left to selling their land to big developers who come in and build something meaningful on their property.

And what we are trying to communicate is that it’s not that difficult. Many people think that development is impossible and super high risk, which it is. If you don’t know what you’re doing, it’s really easy to lose a ton of money by going into development if you don’t know what you’re doing. But so we’re trying to bridge that gap. We’re trying to help them, first of all, figure out what could be built. Second, what the value, the future value is going to be and then structure.

the financing to get the project capitalized, bring in investors if needed, and then bring in senior debt, engage all of the consultants, contractors, and see this process through.

Michelle Kesil (03:53)
Awesome. And what markets are you operating out of?

Eugene Gershman (03:56)
Nationwide, we’re based out of the Seattle, Greater Seattle area. We’ve been in the Western Washington market for the last 20 plus years. And um recently we’ve opened up our doors and started looking at opportunities all over the country, simply because they have been coming to us. And so when the phone rings, we answer and we’re happy to look at projects all over the country. We have have had some inquiries from…

outside the country, few inquiries from Canada, If you believe it or not a few phone calls from Australia recently. So we’re you know not actively pursuing those, but generally speaking, nationwide from Florida to Alaska, we’re happy to look at deals.

Michelle Kesil (05:24)
And is this just supporting, you know, people that maybe have extra land? Or how does it work? Like how do these people come upon this land that could be developed?

Eugene Gershman (05:34)
You know, all walks of life, our ideal client, partner profile is an individual or family who owns the land. For example, one of our clients, the family has owned properties for decades and they are looking to monetize it. They don’t want to sell. They would like to see something built there. We also had calls from somebody who inherited the land.

and they see the development potential. But also we can work with other development groups who have maybe already engaged their consultants, architects have started going down the path of development, but need additional help resources to find investors, find capital and bring in somebody with longer track record, more experience to build up the credibility of their team.

Michelle Kesil (06:22)
Does sense?

So what does the process look like if someone comes to you and they have land? like can you walk us through what that journey would be?

Eugene Gershman (06:31)
Absolutely. Yeah, that’s my favorite part is how do we tackle it? Where do we start? And the first thing that we do is obviously look at the property. We do what we call a cursory high level review code analysis, where we literally look at what’s there, what’s around there, that property and what could be built and what’s allowed to be built. Many municipalities have zoning laws that

dictate how that municipality want to grow their area and what could actually be built there. So we start there. And In some cases, we want to build something bigger than what’s allowed. And so then we start thinking about, well, can we get it rezoned? Can we come talk to the municipality and bring enough compelling reasons for them to change the zoning for this property? So we start with cursory analysis. Once we sort of figure out

the general direction, that’s when we propose to do a full complete feasibility study. In that feasibility study, we dive deeper in code analysis, we bring in a designer and start laying out potential buildings, depending on the type that we’re pursuing. If it’s single family subdivision, it’s one thing. If it’s townhomes, if it’s apartments, condominiums, depending on

what style of the property it is, will dictate who we’re going to bring in to help us with this initial conceptualization and, you know, not even schematic, conceptual design. Also, it’s important to understand what the owner wants to do. Do they want to retain the property long term or do they want to develop and sell? Because from there, it will drive our decision. Is this going to be

a rental property or maybe it’s going to be a for sale. You know, if we subdivide it, do we just sell off individual homes or do we build a condominium tower and sell off individual condos or is this going to be an income producing property? So all of those things come into play. We build a financial model and we figure out how this deal is going to get financed. We figure out what the value of the land is. We figure out how much capital is going to be required and we put together a full conceptual pro forma.

From there, the owner makes a decision whether they want to pursue it or not. Typically, we would during the feasibility study, we would figure out how much it’s going to cost to get us to you know a permit level. Once we have the building permits, that’s when we can go out and secure a construction loan and continue operating. So we need to figure out how much cash we need to get to that point.

And that’s where the owner gets to decide. They could invest additional capital if they have it and if they’re interested. Or we could syndicate and bring investors early stage investors into the deal. Or we could borrow against the property to finance the early development stages. During that stage, we hire consultants, architects, contractors. Very important, we bring in a contractor at the earliest possible stage to help.

us estimate the deal so that by the time it’s designed we already know how much it is going to cost. And at that point we go out and look for additional LP, limited partner capital, to finance the rest of the project and then we also go out to lenders and bring in the lender. From there we manage construction, we oversee contractors operations, we bring in

property management or real estate team to prepare for the eventual exit strategy. And we see the project all the way through. So that’s kind of you know very abbreviated high level path from early ideology to final exit.

Michelle Kesil (10:50)
Yeah, amazing. That’s awesome that you have so much support in that journey. So it sounds like the client doesn’t have to worry or stress about all those pieces and you guys take care of that roadmap.

Eugene Gershman (11:03)
We are super open to various different arrangements and relationships. We’ve had clients in the past who would call us and say, we would love to develop it, but I want to be involved. I want to be sitting in every meeting. I want to be making every decision. And I want to learn so that I could do the next one on my own. And we’re totally fine with that. We welcome all kinds of participation. We had clients who called us and said, hey, I

would love to invest in this. I’ve got the land. I would love to do this, but I want my kid to work for you guys.” And Because they want to learn. We’re fine with that too. But then we had other clients who said, you know what? We don’t want to deal with it. We don’t want to know about it. Just send us quarterly reports and we’re done. And we’re fine fine with that arrangement as well. Unlike That puts us apart from many other developers who would say that they would partner with owners, but their partnership typically means that they take the land,

put it in the LLC at an agreed upon value and they take the reins and they don’t want any input from the owner. We’re the opposite. We would love input from the owner. We would love to exchange ideas and bring something that would satisfy not just the market, but also that person’s or that family’s goals and ideas.

Michelle Kesil (12:19)
make sense? Awesome.

What are you most focused on solving or scaling to next in your business?

Eugene Gershman (12:25)
Really that project acquisition model, we’ve been operating for the last, it’s funny, we’ve been in business for so long. We’re a family-owned company. My father originally started it. I joined the company, but we never really had this new business acquisition model. And that’s what we focused on in the last 18 months is how to scale, how to…

you know, promote the word out there that we are available, that we can work with owners across the country, and that we could bring this value. In the past, it’s all been word of mouth. We’ve invested a lot of our own cash into projects. And now we said we are specifically a development management firm. While we have invested in projects ourselves, that’s not what we’re promoting, because there’s going to be a line out the door of people who need money for their deals.

And what we would like to communicate is that we are a development management firm. We can help you find money. We know a lot of people with investments ready to be deployed, but that’s my main focus is to build that structure. So we’re well underway there.

Michelle Kesil (13:32)
Yeah, amazing. That’s exciting.

What have been some of the main keys that have made the difference in allowing your business to be able to grow and to run smoothly?

Eugene Gershman (14:24)
I mean, it’s all about the people, right? You can’t do much without a qualified team. And this is really what it’s about. We’ve been employing all kinds of technologies, trying out various different AI solutions, which have been great. We’ve been able to simplify and streamline a lot of our work.

For example, we recently have been promoting this AI prompt that we’ve narrowed down. actually in the process of building a custom GPT for that for code analysis, for project preliminary analysis. So that’s been super useful. Once it becomes public in the next few weeks, anybody can go into our website, plug in their address and zoning information.

and then receive a very detailed, we call it a pre-feasibility analysis of what’s possible on their project. So that’s been super helpful, but generally speaking, it all comes down to people.

Michelle Kesil (15:24)
Yeah, absolutely. The relationships are everything in this space.

Eugene Gershman (15:29)
Exactly.

Michelle Kesil (15:29)
So when it comes to the types of projects that you work on, is there like a certain, what’s the word? Like avenue or niche that you primarily focus on?

Eugene Gershman (15:45)
Yeah, so our main niches, the way I describe it is as long as people live there, we would do the project. But uh you know my official answer is multifamily, single-family residential. It includes everything from single-house infills, which we wouldn’t do them outside of our immediate area just due to the size and proximity limitation. But locally, yeah, we would do an infill house.

townhomes, small garden style apartments or condos to podium style apartments to towers. And that’s really what we like, what our niche is. We’ve done a few projects that are technically called mixed use, but they’re residential forward. So it’s a residential building with a retail, small retail component. And we’ve done early.

studies for hospitality projects, but for full disclosure, we have not gone full cycle on those. So I you know like to say, no enough to be dangerous when it comes to hospitality, but I am definitely not an expert. But yeah, the niche is residential, multifamily and single family.

Michelle Kesil (16:48)
Awesome. And then these projects, do they become more or less like investment opportunities for your clients?

Eugene Gershman (16:54)
Absolutely, absolutely. So the clients, the landowners, it is an investment for them. And the reason they stay in the deal and the reason they want to see that land develop is because it’s it’s an investment opportunity. Of course, it’s you know, community impact and all of those other additional benefits. But we always treat it as an investment. And then when we

structure the project in most cases, deals require additional investments. And so we open up our development opportunities to outside investors to come in and invest in them. And we have what we call a GP bucket, GP side of the capital stack and the LP side of the capital stack. So GP, despite the name, they’re still all of the investors are limited partners and they don’t incur any liability other than the

money that they invest but on the GP side that’s early stage investors. are typically peripasue to the original property owner as far as their investment value. They typically incur higher risk due to the length of the project and due to a lot of the unknowns that still exist at early stages. But on the flip side they get to participate in GP promote.

and they typically tend to make more money, more high return on their investment by the time they’re done. The LP side investors, those folks typically come in at a later stage, right before the permits are issued. So by then the project is already designed. The senior debt is typically identified with term sheets on hand or maybe financing commitments ready.

construction costs are well estimated and we would have a guaranteed maximum price from a contractor. So there’s, ⁓ and the schedule timeline is very much known because you know the permits are ready to be issued. That’s really one of the biggest variables, especially in larger metro areas. Permits tend to take quite long and are often unpredictable. But when the…

Permits are ready to be issued. A lot of these unknowns are already eliminated. And so we know the timeline. We know exactly how much money we need. Those investors, they typically get a preferred return. And then there’s waterfall structure that identifies their returns. and um yeah then on top of that, senior debt comes in.

Once construction is finished, we would refinance the senior debt. Sometimes we could do a construction to perm loan. Those programs are available. But then there would definitely be some sort of an exit strategy for LP investors and LP investors who invested early on in the GP side.

Michelle Kesil (19:44)
Awesome. What an exciting opportunity. Is there any sort of risk or hesitation your clients often face or overcome?

Eugene Gershman (19:55)
clients as in investors who come in or the original property owners? Okay, yeah, no, absolutely. Development is a risky business. And we always start with that. That if, if risk is, you know, if a client is very risk averse, then perhaps development is not for them. So they always need to understand what that risk is. And what is the worst case scenario?

Michelle Kesil (19:58)
Original owners?

Eugene Gershman (20:20)
You know, for compliance sake, it is possible to lose everything. It is possible to lose all of the investment. My job is to prevent that and to structure the deal in the most advantageous way. Typically how developers and investors lose money is by over-leveraging. They borrow too much, things happen.

projects get delayed, they end up costing more. And if there’s no solution how to pay off the debt, that’s when the project suffers, know, foreclosures and the lender comes in and takes it all. And the investors, and in this case, land, original landowner is an investor, they would lose a lot or potentially everything. So when we structure deals, we’re always very cautious about debt.

you know, many owners would ask us, how can we finance early stage development without bringing in outside investors? And really, there’s, there’s two ways either you add your own money and you pay out of pocket for engineering and architecture and permitting, or you bring investors or you, guess three ways, right? Or you borrow against the land. But when you borrow against the land, you use the land as collateral.

Most lenders at that stage would not loan more than 50 % of the value of that land. So if your land is worth a dollars, you can’t borrow more than half a million. And the reason they do that is because there’s no value yet created. So lenders are concerned about their own exit strategy. They want to make sure that you are going to be able to lender, or the land owner is going to be able to refinance, get a construction loan, or sell

their property once they’re done Nonetheless, it’s a risk. It’s a risk because timelines could shift. A lot of costs at that point could be unknown. There may be things that would get discovered later on that we couldn’t anticipate. And so the risk is there. If there’s no debt, really the only thing you’re risking is time and maybe some capital that you’ve invested in.

to get in this project design and permit it. And usually that investment gets cured over time, you know even if they decided to not build, over time property value is going to appreciate and that expense is gonna get absorbed. But in many cases, in most cases, even if they decide not to go through construction, just the mere fact of creating a concept.

for future development, getting the permits, getting those designs done. They create so much more value. And there are a ton of builders and developers and investors out there who would be willing to pay for a project that’s designed and permitted and ready to be constructed. They say shovel ready, rather than buying this unknown and going through the design and permitting and waiting all this time. So typically, there’s value created. But back to your point about the risk.

The risk is always there. What I would say is whenever possible, reduce debt or do it debt free to you know prevent yourself from a total loss.

Michelle Kesil (23:42)
Yeah, absolutely. Thank you for explaining that. So before we wrap up here, somebody wants to reach out, connect, learn more, where can people find you?

Eugene Gershman (23:51)
Yeah, I’m on all social media platforms. The best way to find my company and read more about GIS is go to giscompanies.co. It’s companies in plural, .co. No over there. Check out our services. Check out what we do for investors out there. There’s a section called Invest With Us that talks about various different investment platforms.

For landowners, We offer a free feasibility study checklist where if you’re considering development, download the checklist and look through all of the things that we do during feasibility study. And if you want to do it on your own, feel free to download it and use it as a guide. In the next few weeks, so right now we’re in the beginning of December as we’re recording, in the next few weeks we will release a custom GPT that

we are working on for owners to test their own property, plug in your address. In some cases, it’s able to determine the zoning and in other cases, you would have to manually tell it what the zoning is for your property and it’ll give you a very detailed analysis of what could be built there. So that’s another free resource that we’re offering there. Other than that, look me up on LinkedIn, Eugene Gershman.

respond to everybody. accept most incoming connections unless you’re trying to sell me something that I might hesitate. eg underscore developer is my handle on all of the other social media, including YouTube, Instagram, Facebook, TikTok, whatever else is out there. And let’s see what else. and check out my podcast, Real Estate Development Land to Legacy. I talk about

everything that has to do with development. And I bring in a ton of fun guests from other developers to lawyers to designers to capital raisers to investors and we talk talk shop and try to be as educational as possible.

Michelle Kesil (25:47)
Perfect. Well, I appreciate your time and your perspective. Thank you for being here.

Eugene Gershman (25:51)
Thank you, Michelle.

Michelle Kesil (25:53)
Of course, for the listeners tuning in, you got value, make sure you’ve subscribed. We have more conversations with operators like Eugene who are building real businesses, and we’ll see you on the next episode.

Tags:

Investor Fuel

Land Development for Landowners: Feasibility, Financing & Risk Explained

Show Summary

Resources and Links from this show:

Listen to the Audio Version of this Episode

Investor Fuel Show Transcript:

Tags:

Ready to take your business to the next level? Take the next steps below