1. A Member of the Shinn Group of Companies
What is your Land Worth?
Land Valuation Techniques
Led by: Jim Weigel
Chuck Shinn
October 15, 2008
4:00 – 5:00 EDT
For more information on Builder Partnerships, visit our website:
www.builderpartnerships.com

2. Why Land?
• Homes values are easily determined via market sales or rental income
• Income property (apartments, retail, office, etc.) values are easily
determined via rental income
• Land is a financial input—the most significant—in the cost of a property
• Land, apart from agricultural or recreational use, does not produce income
• When there are no feasible selling or rental opportunities, land produces
more expense than income—it is a liability
• Land has contingent liabilities—environmental, personal, and management
risk
• Land values have the most operational leverage (i.e., small changes in
home prices or rents produce relatively larger changes in land values)
– People can make the highest profit margins or experience the worst losses on
land
– When markets slow, land sale transactions become almost non-existent or ar
bank or other distressed sales at low prices
• The intrinsic financial value of an asset is the present value of its future
cash flows.
– The market price of an asset may be higher or lower than its intrinsic value

3. Summary of Presentation
1. Up and Down Markets: Facts and Beliefs
2. Builder-Bank Case Study
3. Homes under construction
4. Finished lots
5. Lots under development
6. Raw land
7. Write your questions during, ask after

4. The LeBeau Wave
A theory of market cycles
Where are we now?

5. Dynamics of Market Cycles
1. An “up” phase is followed by a “down” phase.
2. A “down” phase is followed by an “up” phase.
3. “Up” phases may take awhile to develop

6. Market Watch
• People don’t know where they are until after.
• Especially, people don’t know when they
have reached the turning points.

7. Market Predictions
• Throughout either phase, predictions or
forecasts are constantly being made that
extend the existing phase into the future, with
occasional changes in the other direction at
some time in the future
– (e.g., next year it will go down / up).

8. Market Reactions
• People are generally greediest at the end
of the “up” phase
– (when they should be the most fearful).
• People are generally the most fearful at the
end of the “down” phase
– (when they should be the greediest).

9. Market Cycles: Phase I
• In Phase I, we are at the top of the market
and we don’t know it.

10. The LeBeau Wave
Phase I – Top of Market
Where are we now?

11. Example: Phase I
Units 40
sf 2,500
Revenue $10,000,000
Land cost 2,000,000
House cost 5,000,000
Gross profit $ 3,000,000
Overhead 2,000,000
Net profit $ 1,000,000
Price psf $ 100.00
Land cost per unit $ 50,000
House cost psf $ 50.00
Overhead per month $ 166,667

12. Market Cycles: Phase II
• In Phase II, unit volume has decreased, in
this case 50%.
• If we are decisive and quick, we reduce
overhead by 50%, after losing…???

13. The LeBeau Wave
Phase II – Declining Market - Volume
Where are we now?
I guess 50%-70% of the way down.

14. Example: Phase II
Units 20
sf 2,500
Revenue $ 5,000,000
Land cost 1,000,000
House cost 2,500,000
Gross profit $ 1,500,000
Overhead 1,000,000
Net profit $ 500,000
Price psf $ 100.00
Land cost per unit $ 50,000
House cost psf $ 50.00
Overhead per month $ 83,333

15. Market Cycles: Phase III
• In Phase III, volume has fallen and prices
have fallen, too.
• In this case, volume is down 50% and prices
are down 20%.
• We have made our 50% overhead cuts—but
we’re still losing money!

16. The LeBeau Wave
Phase III – Declining Market – Volume & Price

17. Example: Phase III
Units 20
sf 2,500
Revenue $ 4,000,000
Land cost 1,000,000
House cost 2,500,000
Gross profit $ 500,000
Overhead 1,000,000
Net profit $ (500,000)
Price psf $ 80.00
Land cost per unit $ 50,000
House cost psf $ 50.00
Overhead per month $ 83,333

18. The LeBeau Wave
Phase IV – Bottoming –Struggling Market

19. Example: Phase IV
Units 20
sf 2,500
Revenue $ 4,000,000
Land cost 300,000
House cost 2,500,000
Gross profit $ 1,200,000
Overhead 1,000,000
Net profit $ 200,000
Price psf $ 80.00
Land cost per unit $ 15,000
House cost psf $ 50.00
Overhead per month $ 83,333

20. Comments on Struggling Phase
• Houses have not been redesigned much; they are simply competing
on price, especially with resales/foreclosures (luxury market prices
down because of contractor competition)
• House costs are lower, but mainly from suppliers & trades simply
surviving
• Finished lots are being used up at substantially less than
replacement cost
• Overhead is down because there are few people and other
expenses; systemic efficiency hasn’t taken place
• Few land transactions are taking place, new development is stopped

21. The LeBeau Wave
Phase IV – Recovering Market

22. Example: Phase V
Units 20
sf 2,000
Revenue $ 3,200,000
Land cost 640,000
House cost 1,600,000
Gross profit $ 960,000
Overhead 640,000
Net profit $ 320,000
Price psf $ 80.00
Land cost per unit $ 32,000
House cost psf $ 40.00
Overhead per month $ 53,333

23. Comments on Recovery
• Houses are smaller and different
• House costs and prices are lower PSF
• Volume is low
• Overhead is lower and more efficient
• Finished lots are lower priced but better than the
struggling period—they are about 20% of house
prices
• Profitability has returned
• Emotions are still fearful, worried, etc.

24. Then
Case Study
• Project is 100 lots
• Originally expected to take three years to develop
• Build out and sell homes averaging $250,000.
• Land cost was $2,500,000, development costs were expected to be
$25,000 per lot; there was $1,250,000 of equity and a $3,750,000
acquisition and development loan.
• The project was to be developed in three phases or sections.
• Direct construction costs were expected to be $150,000 per home,
and there was a construction loan for pre-sales, two models, and up
to six spec or unsold homes.
This all happened September 2006.

25. Now
Case Study
• Development of first phase of 40 lots was completed March 2007.
• Models were completed August 2007.
• To date, 7 home sales have closed, 10 additional are under
construction, 6 are under contract not started, and an additional 19
sales were made but cancelled.
• There are 7 spec homes because of the cancelled sales.
• Average home sale price is $200,000.
• Development of the second phase of 30 lots is 60% complete.
• Homes under construction, including specs, are about 50%
complete.
• Development costs have been as budgeted; construction costs have
been reduced 10%.
• Current loan balances are as shown on the spreadsheets.
It is September 2008.

26. What to Do
Case Study
• You and your bank are trying to decide
what to do.
• In order to assess the alternatives, you
have been asked to forecast cash flows and
estimate values for the homes and land.

27. Homes
Conclusions
• Models are worth the loan amount; after selling costs a small deficit
• Pre-sold homes built & closed will yield a surplus
• Spec homes will yield a deficit, but when sold and closed will reduce
the loan amount
• If the builder finishes & sells these homes, the bank should repay its
construction loan in full, and may realize a surplus up to $173,750,
assuming market conditions & builder operations remain the same
or better. This assumes no interest on loan balances.
• If the bank takes over the homes, the bank may realize a 53% loss
on its current loan balance.

28. Finished Lots
Conclusions
• Of the 21 remaining finished lots, 6 have pre-sold contracts on
homes not yet started. Building and closing these homes will reduce
the land loan and potentially result in a surplus to further reduce the
land loan.
• If the builder continues to pre-sell, build and close homes, that could
realize $525,000 of proceeds to repay the loan, not including any
surplus from home sales.
• If the bank chooses to stop sales, these lots might be sold for up to
$180,000, or about $8,600 per lot. It would cost the bank about
$7,000 per month to hold these lots until they are sold. This
assumes willing and able lot buyers and lenders are available.

29. Lots Under Development
Conclusions
• At current absorption rates, it will take about 15 months before these lots
may be sold.
• Based on that, development shouldn’t be started again until about three
months before they are ready.
• Until that time, it will cost about $7,500 per month to hold & manage these
lots, excluding interest.
• If held and developed, these lots could realize about $350,000 to $450,000
of net proceeds to repay the loan, assuming no interest. This excludes any
surplus that might be generated from home sales.
• If the bank chose to market these lots now, they might be sold for up to
$190,000, or about $3,700 per lot. It would cost the bank about $7,500 per
month to hold these lots until they are sold. This assumes willing and able
lot buyers and lenders are available.

30. Raw Land
Conclusions
• For the 30 remaining undeveloped lots, the development costs equal
or exceed their value when completed. Consequently, they have no
current intrinsic financial value.
• It currently costs at least $2,500 per month to hold this land. These
lots wouldn’t be necessary for about 34 months, assuming market
conditions remain the same.
• When home prices increase at least 10%, lot development costs
decrease at least 20%, or some combination, then this land may
have an intrinsic financial value.
• Until that time, the land has only minimal speculative value, unless it
has any agricultural or recreational value.

31. Land Summary
Conclusions
• The current balance of the acquisition & development loan is $1,481,250. Under the
original assumptions the land would be worth at least:
– Finished lots $950,000
– Lots under development $850,000
– Unfinished lots $750,000
– TOTAL $2,550,000
• Based on the current intrinsic financial value, the land is worth as follows:
– Finished lots $180,000
– Lots under development $190,000
– Unfinished lots $0
– TOTAL $370,000
• Because of market conditions reducing absorption rates by 50% and house prices by
20%, the land value has been reduced by 85%, if were to be sold in bulk and there
were willing, able buyers and lenders.
• If a reasonable build-out program is established, over the next 2-3 years, the project
could generate about $1,000,000 of net cash flow from finished lots and lots under
development. At that point, the raw land may be feasible to develop, or it may have
additional speculative value.

32. Final Conclusion
• Land valuation is key to lenders understanding reserves
and alternatives
• Land valuation is key to builders and developers having
a sense about real values, absorption rates, and
feasibility for new development
• Even though land values have dropped substantially,
when home prices and absorptions increase slightly,
land values will rise dramatically

33. Questions & Comments

34. Steps to Consider
• Consult with a competent bankruptcy attorney
• Get agreement on the current and anticipated situation
– (Situation Analysis)
• Understand the real value of land
– (Land Residual Method)
• Develop your financial analysis for each project, rolled
into each bank and company
• Provide regular, consistent information to all lenders
– (Consider website with password)

35. Featured Services
• Hourly coaching-consultation with market-tested strategies for your
specific, urgent problems
• Customized, quick, reasonably-priced land valuation
• Customized, quick, reasonably-priced project forecasts
• In-house customized training programs
• In-depth understanding of home builder operations
• Specific market research / intelligence
• Evaluation of key performance ratios
• Home builder advisory assistance to help clients cut costs, sell
houses, and pay off loans
• Assistance in restructuring loans to increase payoff
• Assistance with liquidations or workouts
• Sale of assets
Contact Emma Shinn at eshinn@theshinngroup.com
to discuss service options.

36. Upcoming Webinars
Profitable Risk Management - Typically, Builders spend far too much money to purchase sub-standard coverage
for risk mitigation. Bruce Denson discusses a solution for production builders that allows you to purchase a
product that fits your needs without paying extra money for insurance you will not use.
October 22nd at 11 AM EDT Free to attend
Generate Your Own Traffic - There is a lot more that sales teams can do to generate more of their own traffic.
Working old registration cards, calling old customers, being more involved in the community are just a few
ideas. Join Ross Robbins and several leading builders to explore ways to increase traffic to your communities.
October 23nd at 11 AM EDT Free to attend
The Market Sucks! - Does Your Marketing? - It is a fact that good follow up with prospects will convert sales and
good follow up with buyers with bring referrals. So why are we so bad at it? Brian Wildermuth presents a
model for developing effective, professional campaigns and presents a tool to facilitate the process.
October 28 at 11 AM EST Free to attend
Begin the Journey Towards Recovery - With the market in turmoil, many builders have become disillusioned.
Others have decided to step back and wait for things to settle down. And still others have given up. Where do
you stand? Are you going to be a survivor? If so, NOW is the time to begin the journey towards recovery.
Join us for Part 1 of a three part series exploring what it takes to survive in this market.
October 31 at 11 AM EST Free for Builder Partnerships members / $60 per line for non-members
Contact Helen Virene (helen@builderpartnerships.com to register.

37. A widely recognized and well-respected leader in
providing support to homebuilders and other
organizations in the home building industry.
The premier organization in management education
for the home building industry since 1954.
An agent for its members and associates aimed at
fostering communication and cooperation between
builders and manufacturers.

38. Increase your Returns
• Most manufacturers offer incentive programs but not
many builders are taking advantage of them to the fullest
extent
• Builder Partnerships offers over $2500 in incentives per
unit constructed
• Builder Partnerships allows you to focus your efforts on
negotiating to get the best price without having to worry
about the rebates
• We manage the incentive programs and follow up with
manufacturers to collect the money so you don’t have to
• For more information on how to join, contact Glenn
Singer (glenn@builderpartnerships.com).

40. Builder Clients
Shinn Group clients represented by the red dots, blue diamonds indicate Builder Partnerships members
The Shinn Group has over 500 builder clients disbursed throughout the US and Canada.
Our clients typically construct between 50-2000 units annually. They build across all
price points. Many of our builders are repeat award winners and leaders in their
respective markets.
Through Builder Partnerships, we represent 100 builders constructing approx. 25,000
units annually across the US and Canada