Holding Strategies Land Banking
The following are examples of several strategies that successful realty
investors utilize. Some of the strategies are short term and some
are long term.This strategy is long-term in nature, because you’re investing in a
property that you intend to hold, and then either develop it some
time in the future or sell it to someone else who will. For example,
you could buy land and use it as a parking lot with the intention of
building an office building at some time in the future, when demand
for office space is greater.
Another example of land banking would be building relatively
low-cost storage rental units on a site that you feel will be very
strategic at some future time. Meanwhile, you rent out the storage
units with the intention of someday tearing the units down and
building something more profitable on the site, such as a retail store
or a fast-food operationLand banking could consist of buying a vacant
lot or a building in the path of future development then selling
it when the time is right.
I came across a classic example of land banking quite by accident.
My wife was talking to a friend of hers who mentioned that her husband,
Jerry, was offered almost $5 million to give up his lease on a
bar and grill on 6th Avenue in New York City. My wife didn’t think
she got the story straight and asked me to talk to Jerry and find out
the details. Jerry confirmed to me that he was negotiating with a
Rockefeller affiliate to sell the lease on his bar and grill for somewhere
around $5 million, but he thought that it sounded fishy and
wasn’t sure it was a serious offer, because the price was so high.
When he told me the location of his bar I knew it was in a strategic
location where a new high-rise office building was contemplated. I
told Jerry, “It’s entirely possible this is a legitimate offer and if you
decide to accept the lease buyout you need a good real estate lawyer
and a good tax accountant. I’m not looking for work but if you need
me I’m available as the lawyer.” It was a Friday and he told me he was
going to Las Vegas over the weekend and he’d think it over. Saturday
night I got a call from Jerry asking me to be his lawyer on the deal.
I agreed and asked him, “Jerry, why couldn’t you wait until you came
back to New York? Why did you call me on a Saturday night?” His
answer was, “When I flew out last night I was sitting beside a man
who happened to mention that he was a big real estate operator. I told
him my whole story and he said there’s only one lawyer you should
use, George Ross, he’s my lawyer but he’s probably too busy to handle
your matter. So I decided I better call you right away.”
I got Jerry his $5 million and he was so excited he thought he had
discovered an untapped world of real estate opportunity. He said he
was thinking of buying property in another area he perceived as a
strategic location and go into land banking as a business. I warned him,
“Jerry, what happened to you is a fluke. Don’t think it will happen
again.
I strongly suggest that you put the money into something you
know.” A short time later he asked me what I thought of a particular
property he was contemplating buying for land banking. I told him,
“Jerry, forget it, I know that block. Sol Goldman has it locked up with
the piece next door and you’ll die holding the piece you’re contemplating
buying.” He didn’t like my comment so he hired another lawyer and
bought the parcel I warned him about. In three years, he managed to
blow the entire $5 million. Be forewarned: Land banking is not for the
timid or those with limited resources. Staying power is a prerequisite..
Renting houses or apartments has always been a great way for realty
investors to show a good return on their investment. However, when
it comes to renting houses to tenants, there’s another potential
method one can use to earn an even greater return. You can do it by
giving a tenant an option to b...
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Sometime a piece of real estate requires a change of use to achieve a
greater value. If you have a residential building that isn’t doing well and
the zoning permits the change to office use, check it out. If it’s costeffective
based on the cost of the conversion and the increased income
from off...
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Once again I must use Leonard Kandell as a prime example of brilliant foresight and real estate savvy. Kandell owned land on Central Park South in New York City under a ground lease owned by the operator of a Ritz Carlton Hotel. It was a valuable piece of land in a very strategic spot with a majo...
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Partnerships or joint ventures are excellent vehicles for blending diverse
investing interests into a cohesive business entity. One partner
may put in nothing but money, another may put in both money and
expertise, a third may contribute land. The documentation binding
them together requires careful...
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John Maynard Keynes, arguably the greatest economist of the twentieth century, likened the position of short-term investors in a stock market to that of readers in a newspaper beauty contest (popular in his day). The ostensible task of the readers is to pick the fiv...
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