Most urban communities across the country, including Connecticut cities like Stamford and New Haven, are constantly undergoing neighborhood value changes.
When neighborhood demographics change and an area begins to develop – particularly in Manufacturing/General, Light Industrial and similar mixed commercial zones – chances are, existing businesses and property owners in these land use zones own real estate which, if redeveloped, can deliver very large capital gains.
What is a real estate development assemblage of scale?
In a gentrifying area, individual parcels are often too small to redevelop into a commercial property. Property owners who sell a parcel that cannot support a fully-scaled revenue-producing property are not likely to realize maximum value. However, if redeveloped into an assemblage of scale, the demographic factors supporting the value increase of properties are multiplied.
In other words, if neighbors get together and build a larger land parcel, the value of the larger parcel grows markedly.
The result of a real estate development assemblage is a value which greatly exceeds the sum of its parts. Any grouping approaching an acre or more in size tends to demonstrate this effect.
How can co-owners profit from a development assemblage?
Traditionally, large scale retail users or developers – for instance, shopping center developers – used so-called “stalking horses” to assemble adjacent properties into entities whose owners were nominees of the user or developer.
But owners of adjacent properties can also proactively maximize capital gains by getting together in a “co-ownership group” of tenants in common. Under this arrangement, several owners can increase the “per square foot” value of the consolidated parcel, but still retain title to their separate properties. Each individual owner can even enter separate Section 1031 tax-deferred exchanges upon the sale of the entire assemblage.
By uniting with neighboring property owners to amalgamate a parcel, co-owners can directly and individually reap the benefit of marketability and value enhancements; rather than that benefit going to an outside party seeking to develop the resulting assemblage of properties.
To reap the benefits of an assemblage, work with an experienced real estate lawyer.
Putting together a development assemblage controlled by a “Co-Ownership Agreement” is a sophisticated development strategy that requires the guidance of experienced legal and marketing counsel.
As part of this work, an experienced real estate attorney will help co-owners navigate a complex series of tasks, including:
- Evaluating municipal zoning regulations and land use restrictions
- Creating a co-ownership contract that cements the property owners
- Packaging real estate into an amalgamated parcel, supporting the conveyance of a unified title
- Advising co-owners on capital gains and tax strategies
While complex, when done properly, the capital gains that individuals can realize from a real estate development assemblage controlled by a co-ownership agreement far outweigh the investment.
Cacace, Tusch & Santagata can help you explore creative solutions to all your real estate, zoning and development challenges. For assistance in evaluating a possible development assemblage, contact our Real Estate practice group.