Stage 2: Land improvement
Usually straightforward and with a shorter investment period, the land improvement stage consists of meeting all the conditions of approval agreed upon during the development and entitlement stage, and performing the horizontal construction needed to get the land ready for building. This stage begins with an approved land improvement plan and ends with the delivery of building-ready pads.
What is horizontal construction?
When getting raw land ready for buildout, the developer is adding the necessary infrastructure improvements, such as roads, curbs, gutters, street lamps, and access to all utilities and sewer, water, etc. All grading to create building envelopes has been completed, improvement conditions have been met, and the land is primed and ready for building developers to take over.
By the end of this stage, the value of the land has potentially reached a multiple of its original value. The land improvement developer has business relationships and an understanding of the types of products building developers are looking to build, and seeks to provide land with a vested map and building-ready pads to match those needs. A land improvement developer, for example, may focus on master-planned communities, selling the finished lots to home builders, and distributing any potential returns to its investors.
Potentially lower risk and historically predictable returns
Though historically the potential return is generally not as high as that of investing in raw land, this stage of development comes with possibly less inherent risk. All the tough hurdles in land use and building permitting have been crossed, and building developers have expressed interest in buying the finished lots.
Because the process in this stage is well-defined, investors should have a clearer idea as to the expected timeline and the potential returns when choosing to invest in a land improvement project.