Taking the Emotion Out of the Deal

Thursday 24th September 2015 06:46 EDT

We are trying to tie up a couple of pieces of land which are around two properties we own. We managed to purchase two sites in quick succession right next to each other. The properties are spirited by a right of way for another development to the rear of our site. 

This bit is important to us, as it will allow us to build one unit rather than twin towers. Meaning more units and a more holistic building. Holistic because things will not have to be replicated such as the lift. One lift can service both buildings. The access at the ground level can still be maintained, by building only from the 1st floor upwards. If this is achievable the ground floor, probably commercial units will be high ceilinged and all glass this will allow a good level of light flow though this access point. An important consideration when going for planning. 

The developer to the rear of us knows the game on this site probably better than us, they have built several hundred units here already and we have not. There are three options for them, one not to do any deals, the second to sell the land to us outright, and the third to do a joint venture with us. The later option will open up more variables, we will need to see how we can carve the cake between us. It will probably be based on the extra units this space gives us. 

It helps allot that they actually know the game and understands that there are risks to doing this development and simply not to focus on how to carve up the rewards. They also know the lungs of property and construction. This means at least when you meet at the table you can talk in the same language and hopefully come to a sensible arrangement which is good for both parties. 

The other piece of land is not as essential, it can however be helpful. It is owned by two brothers who have held it for over 30 years. They have been sitting on it and just collecting the rental income. As the area around this site has been developed, they have kept their tenants on 2 month notice period, realising that at some point they will be approached by someone with an offer. And an empty site is worth more than one occupied by long term tenants from a development perspective.

They claimed to have total control of the site when we tracked them down and met them, however the land registry paints a different picture. Someone has registered a unilateral notice which means they have registered their interest in the site. 

The brothers claim the other party have no real rights to the property and they are fully in control, and therefore in a position to sell if the number is right. This did not make sense to us, as no one would register their interest in a property if they had no vested interest, especially without any opposition. 

What it seems is they had entered into some sort of joint venture with someone who perhaps would upon being granted planning on the site agree to purchase it at a predefined level, or at a level where the price would be based on the number of units they are able to achieve on it. 

Either way they were claiming something which was not true, further more they are not property people. They have one chance to cash in on a site, and they do not understand the constraints and limitations involved in developing a site. They think there are none and this is simply an open cheque book to command whatever amount they wish. However there comes a point above which it is not worth paying for this site purely from a commercial point of view. They did not seem to understand this. They simply thought they could get what they want by playing hard ball. 

They are dealing with property people so there is no point playing hardball we understand the game better than them, and we do not need the site, it would merely be helpful. We have a default position already in place, either as one block or as two separate towers.

If they do not have control of this deal and are giving the illusion of control, it will come out in the open and they will end up with having nothing depending on the JV agreement they have in place. 

Out of the two separate parties we are in communication with, the two bothers will be harder to deal with purely because of their sheer ignorance, guided only by their blind greed. They do not understand the time value of coming to a decision and an agreement. If money and time is spent in going down a certain route there comes a point where it is not worth going back to the drawing board and starting from scratch. 

They may find themselves with a site which no one wants and development has occurred all around them. Hopefully at some point the penny will drop. In negotiations mostly people’s egos play a larger part than looking at something purely from a commercial perspective. This could even prove to be the sole reason why a deal doesn't happen, even though it is not the best thing for either party. Time will tell how this puzzle will be played out.

Planning for the site has been kept on hold until this ground work has been sorted out. Exploratory works have of course been done. But there is not point working out what to build, unless we know the floor plates we have to play with.

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