Valuing undeveloped but approved pads


#1

I have been using the 60/30 rule to calculate the value of a park using paying vs. non-paying pads but how do you calculate approved but not yet developed pads into this equation?

Thanks in advance for your wisdom.


#2

I don’t calculate non-existent lots into the 60:30 rule or any other formal valuation process. I consider the fact that this offers potential to the park (but that’s for my benefit only). I am going to valuate the park on its current cash flow only and not pro forma stuff.

Good luck,

Rooster


#3

Thanks for the input.


#4

As a buyer you want the vacant lots included in the deal, right? Most buyers like upside potential and most sellers know this.

This being said - the lots have some value to you as a buyer. I like to pay as little as possible but for the right park I’m willing to pay 30 - 50 cents on the dollar for upside.

Simply take your cash flow derived value for the park, divide by the # of performing lots to get your developed price per lot. Now try to pay a little as possible for the upside not to exceed .30-.50 on the dollar. The seller deserves a small premium but you deserve the majority since the risk is now on your back to develop.

Food for thought anyway.

Karl