Timeline Concept - Negotiation, Land Planning, Permitting, Construction & Absorption
The
'negotiation,
planning, and permitting' stage, the 'construction and holding'
stage, and the 'absorption
or selling'
stage. These
are the three distinct and progressive stages of the land
development process. The
model recognizes aspects of the initial
stage inasmuch as it
can be used to analyze the impact, often beneficial, of a multi-phase
project versus a single phase project, as well as the most often
favorable effect of negotiating land purchase options when dealing with
multi-phase projects. These recognitions pertain to the negotiation and
planning aspects of stage one.
Permitting costs such as preliminary
engineering, environmental studies, application costs, and all other
costs of obtaining subdivision approval are included in the land
development cost, and as such are accounted for at the end of
the construction and holding stage.
Stage two is the period of time beginning with the month of the initial land purchase and ending the month prior to the first lot sale. Negotiations are over. The minimum length of stage two is the number of months it takes to install the phase 1 infrastructure (i.e., construction period). There are times however, when the stage is necessarily extended due to events such as inclement weather, material shortages, governmental intervention, contractor issue, or other unforeseen occurrences. A longer than anticipated construction and holding period is detrimental to project profitability. The model recognizes and measures, within given parameters, the impact of variable construction and holding periods.
The third stage, the absorption or selling period, begins the month of the first lot sale and ends the month the last lot is sold. Subsequent phases, if applicable, are constructed during this stage. Anyone with land development experience will attest that the importance of the absorption rate cannot be over-emphasized. If lots do not sell at a sufficient pace, profitability suffers. The model allows its user to modify the absorption rate, up or down, the result being a measure of increased or decreased project profitability. In fact, all of the land development components may be modified and the resulting effect on profitability can be measured.
The flowchart below is a visual representation of timeline concepts inherent to the land development process.
Stage two is the period of time beginning with the month of the initial land purchase and ending the month prior to the first lot sale. Negotiations are over. The minimum length of stage two is the number of months it takes to install the phase 1 infrastructure (i.e., construction period). There are times however, when the stage is necessarily extended due to events such as inclement weather, material shortages, governmental intervention, contractor issue, or other unforeseen occurrences. A longer than anticipated construction and holding period is detrimental to project profitability. The model recognizes and measures, within given parameters, the impact of variable construction and holding periods.
The third stage, the absorption or selling period, begins the month of the first lot sale and ends the month the last lot is sold. Subsequent phases, if applicable, are constructed during this stage. Anyone with land development experience will attest that the importance of the absorption rate cannot be over-emphasized. If lots do not sell at a sufficient pace, profitability suffers. The model allows its user to modify the absorption rate, up or down, the result being a measure of increased or decreased project profitability. In fact, all of the land development components may be modified and the resulting effect on profitability can be measured.
The flowchart below is a visual representation of timeline concepts inherent to the land development process.
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| Stage 1 | ||||
| Negotiation, Planning & Permitting | ||||
| No Time Limit | ||||
| Contract With Landowner | Preliminary Layout | Environmental Studies | Governmental Processes | Lender Requirements |
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It
is here, the point
between stage 1 and stage 2, that the initial land
purchase takes place, the construction of phase one begins, and
interest begins to accrue on bank and seller loans.
| Stage 2 | |
| Construction & Holding | |
| Minimum
of 1 Month - Maximum of 11 Months (Model Parameter) |
|
| Construction of Phase 1 | Occurrences of Unknown Events |
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The
point between
stage 2 and stage 3 is when the first lot sale occurs and
the bank's principal loan reduction begins.
| Stage 3 | ||||
| Absorption or Selling | ||||
| Maximum
of 109 to 119 Months (Model Parameter) (Dependent on Duration of Construction & Holding Period) |
||||
| Lot Sales at Constant Pace |
Purchase of Land Under Option |
Construction of Subsequent Phases |
Loans Paid Off | All Cash In Flows |
The
final lot sale occurs at the end of stage 3.
This is also the
time
of the initial equity contribution is returned to the developer and the
end of the project.
Again, there
are three distinct and progressive stages of the land
development process. The
'negotiation,
planning, and permitting' stage, the 'construction and holding'
stage, and the 'absorption
or selling'
stage.
If
you wish to ask us a question about the model, 'Contact
Us' and we will get back to you
as soon as possible.
Land Development Model, LLC
302 West Lafayette Road
Medina, OH 44256
330.441.1690
302 West Lafayette Road
Medina, OH 44256
330.441.1690