In part 2 of our interview, Chandler discusses how he evaluates land banking opportunities that have multi-residential development potential. He discusses the importance of zoning, density and offsetting carrying costs. Chandler also shares his recent land bank success that netted him a 6.5x return in 6 years.
Beyond The Family Business
Assessing Land Banking Opportunities with Chandler Haliburton
(upbeat music) Hi, I'm Luke Handsome-McDold, and welcome to Beyond the Family Business. Welcome back to part two of our two part series about multi-res real estate investment. Our guest, Chandler Halberton, is a tenured expert in multi-res real estate. He's both a real estate broker and a landlord. In part one, he tells us about how he assess his existing properties, the things you need to look out for, the ideal specialist to help you. I've got my general contractor, and I've got my kind of meat and potatoes like builder guy, so I got in over my head in the sense that I didn't know what I was doing. They saved my butt on it. In this episode, we're gonna be focusing on land banking and development opportunities. This is not a new subject to Chandler, as he recently closed a deal where he netted millions of dollars in a land banking play that only took six years to pull off. Nothing has been as lucrative than buying and selling land. You're not gonna want to miss this one. I'm Luke Handsome-McDold. This is Beyond the Family Business podcast. Let's jump into it. (upbeat music) (spits) Okay, so that's a great breakdown of looking at an existing multi-res property. What about land banking? I know that you've had quite a bit of experience with this. You touched on it briefly, and if I can, before I ask the question about how to assess it, you recently had a very impressive exit in this space. Could you just talk high level about what, you don't have to talk about values or anything if you don't want to, but can you explain basically what happened with that? - So it's funny, all of the hard work I've done on anything that was actually tenant-occupied, flipping buildings, managing for years and years and years, turning places over, pretty extensive to the stud renovations. Nothing has been as lucrative than buying and selling land. And it makes me go, oh my gosh, if I'd only known this, maybe I would just bought a lot more land. It's, but some of it is you either need to have a dumb luck or you need to have patience. And sometimes what's best is a combination of both. So I started accumulating land sort of by accident. I had invested pretty heavily in this street, in downtown Dartmouth that was near to my house. It's where I bought my first true multi-unit and I was on the hunt for more multis. And I wasn't happy with what I could buy out there. People are gonna laugh at these numbers when I say them, but people were running $90,000 a unit and I thought that was atrocious. Because I could build for 160,000 a unit. This will give you some context of when this was. And so I thought, why would I buy existing stock when I could build for double the price, but have brand new stock and all of that. So I ended up buying some land that I knew would have a pretty significant rebuild opportunity. And this is going back maybe seven years or something like that. So in order to understand land, you have to start being a bit of a planning nerd for lack of a better term. Or again, surround yourself with people who already are in that space. But this was me just having a lay understanding of what was going on in my particular neighborhood and being familiar with all of the development applications that were going on. Because this was before the center plan back when it was the old school. Hey, someone wants to do this in that area. Everyone gets something dropped off in their mailbox, and then you can be directed to a website. You can go to the public session. And I was learning about all this stuff that was happening in my neighborhood just out of my own personal interest. So when I would see other projects happening in this particular area, and I see this land there, like, well, if they're going for 10 stories there and getting denied, what's the feedback looking like? Well, it's looking like they seem to be receptive to six stories there. I ended up buying that land just knowing that, OK, I will be able to put something there. And frankly, I have nothing else going on. I couldn't find existing stock that I was happy with. So I bought that there. And I started to go through the process. And that was a huge, huge learning curve. Again, it was two and a half years just to get through the development application process. And I didn't really begin that until, well, it would be 2018 because we had our final hearing in the midst of COVID, a virtual meeting. So two and a half years later, they finally approved this massing that I did. And that was after fighting tooth and nail with the planning department, with neighbors, knowing that we would get there because it made sense. Like, I didn't shoot for the moon. I knew what the appetite was in the area. So I knew it would get approved eventually. And then with a stroke of the pen, they made it as a right. Six months later, with another stroke of the pen, they made it as a right, even taller, right? So-- And this is the center plan. This is when the center plan came along. But I had that little bit of foresight because I had just enough knowledge about what was going on in my neighborhood. And I knew people who were doing things in that space. I knew people who were in the planning world. And I knew people that could introduce me to the people at the city who were going to be behind the center plan. And they were telling me, well, this area is earmarked corridor. And this all now is taken for granted because the corridor is out there. And everyone knows what the corridors are. And everyone knows what HR is. And so now people have a literal map as to what you can do in these areas. But at the time, it was all pretty new. But when I was doing that and I was going through that process, another piece of land came available beside it. I'm competitive by nature. I'm a little bit petty by nature. I was upset that I'm like, damn it, I'm going to do all this work up the road. And I'm going to spend all the money. And I'm going to break all the eggs to get this rolling. And then someone else is going to reap the benefit by buying the building or by buying the lot two doors down for me. So I might as well buy that now so that I can double my return on my work because I was really bitter about the fact that I had spent a couple hundred thousand dollars and many years getting this development application through the planning process, only to them have them take a box and be like, now you can just do it anyway. Sorry, we gave you such a hard time. But you got to learn so much. But also, I don't know if they're telling me this just to make me feel better. They're like, your project in that area kind of ensured that that area got that height because you were already on the books and you had done all of the lifting that when it came time to redraw those maps, it was there. In a really basic level, that's how I was feeling about this other site. So I had picked up this other site adjacent to that site knowing that it was going to have the same benefit, whatever benefit I could get down the road I could get with this one. With that though, by the time I was finished the project, the prices had just gone nuts. So, percentage wise, 2018 to when you sold this year, 2024, roughly what was the increase in, you know, as on a percent value or in like the what I spent, let's just do the land value. Land value is like six and a half X. So in a six year period, you had a hundred percent, over a hundred percent return a year. Yeah. So, insane. Yeah, yeah, it was fantastic. With that though, I have to think of like, well, what were my carrying costs the whole time? Absolutely. So why don't we using that as the example? So, that's incredible and congratulations on pulling it off. 'Cause I know, it was very sweet though. I genuinely wanted to build those buildings from my neighborhood and the most exciting thing about it was like I like to create the thing. And so it was bittersweet, but also I had to be realistic about what I'm good at, what I want to do, what I want my business to be. And then I felt I had a responsibility to have, it go to someone that would get it across a finish line because that is what that neighborhood needs. And I wanted it in my neighborhood. So, this is someone who's gonna take it from here and do it, right? Yeah, no, a hundred percent. Using that as an example, when you look at vacant land or land as you described earlier, that maybe has something sub-optimal on it like a commercial location or something that could be redeveloped for best use, which may be multi-res, how do you look at assessing that versus what you described earlier with an existing multi-res that you're not planning on, maybe you do some upfits to it, but you're fundamentally gonna keep it the same. How do you look at a vacant piece of property or a land banking play? Well, now, again, because you have this phenomenal center plan map, like the speed at which you can assess a property is so much better now because before, you're kind of going on a hunch, right? Or a best case scenario estimate, right? There are a lot of people who didn't get their approvals, right? So they banked on something being, maybe I could get 10 stories there and they never got it, right? So, you were going off these hunches and a lot of due diligence and a lot of risk early on. Now, the map is laid out for units, kind of defined what you can do in these areas. So, the first thing is to become a bit of a nerd with that stuff, so you know what you can do. And why that matters is because you're effectively saying, this piece of property has the potential to have this density on it down the road. Yeah, it's how many units or how many buildable square feet can I put on that piece of dirt? Now, if you want like napkin math, which people might find kind of interesting or it's a really high level way of assessing something and the planners would, and the architects would hate this, but I'm going to say it anyway. I use 64% of the lot as usable. The reason I do that is, oh man, I'm thinking of them listening and really hating this, is that you can maybe cover about 80% of the lot and then you can probably use about 80% of that building for units, right? When you subtract your common area, your utility space, all of that. Even your setbacks, whatever, whatever. So for example, on a 10,000 square foot lot, I think you could probably, you know, have a residential footprint of 6,400 square feet. And then it's simple as how many stories can I do? So if you can do say six stories there, well that puts you at probably somewhere around 40,000 buildable square feet of residential. And then you can either apply a value per square foot, which is how the market is going now. I'm sort of a little bit more old school, I think of how many units can I jam in that amount of square feet. So maybe it's, I think a unit is roughly 750 square feet. So that means, you know, maybe that is a 60 unit building. I'm not doing the math that way, I'm ahead. But that is kind of napkin math. So if I take 80% of 80% and kind of I'm taking 64% of the overall buildable square foot, right? 80% coverage, 80% usable. How many square feet does that get me, multiply that by the number of stories, divide that by my desired square footage per unit? - That's great to understand from zoning potential, which to your point in certain cities, like Halifax, there's now Center Plan, which is really easy to get access to. And there's, you know, the interactive map, et cetera. How about as far as getting an idea of the market rent potential and whatnot? - A lot of that you're going to get from CMHC, right? And one, because they're the ultimate data source. But two, chances are, by when building it, you're going to go through one of their programs. So they are going to tell you what you can expect to collect for a bachelor or one, better or a two, better or a three, better. Right or wrong, you're going to have those numbers provided for you. And those are readily available. If you have a good lending partner as part of your end build, then they will also just be able to provide that for you. But yeah, that's kind of out there. This is where, like this is getting a little dicey right now because we are rolling over with respect to rents here. People don't want to talk about that, but we are. There are some people who have maybe pushed the envelope on their rent projections on some builds that are going to have a bit of a reckoning there. But that's kind of what you do. Like that data is out there now, right? And you're going to need it to build regardless. So you can find it. Then you get into your costs per square foot to build and all this. And one thing that I'm obsessed with is parking. Like now with the new Center Plan, you don't need any parking. That just doesn't fit for me. Maybe it's because I've been spoiled growing up here my whole life. I still get frustrated when I have to drive downtown and can't park right in front of my favorite restaurant. And I know that's an antiquated outlook. And I know Halifax is trending towards more public transit and lower parking ratios. I don't love it, right? So when I value sites, a big thing, you can put your price per unit. You can put your price per buildable square foot. You can look at all those all you want. The feasibility of the build and the parking ratio are huge things that people overlook. - Isn't it fair to say that you could almost put parking into the category of a value add where you don't have to have it by zoning. But if you think about it from a marketing point of view of attracting good tenants, if you have a building with very little parking versus ample parking, it's gonna be that much more valuable to - I think it's going to be viewed as a value protector, not even a value add, that's what I think. I don't buy these bike lanes. Like I don't think we, if we were going to do that, we should have done it three decades ago. We didn't and now we have a problem, right? So we are still a lot of people. Like I have this struggle where people rent my mid-century walkups and they're like, oh, just one parking spot eh? - Yeah. - Like they want to. They're a young professional couple and all my stuff is relatively downtown, they have two vehicles, right? So like I would start at like a 40, 50% parking ratio at a minimum, personally. I would prefer to see them up around 70%. Now you have the option where you can dig to infinity, right? So you keep going. - That is incredibly expensive. - Incredibly expensive and you hit, you know, a pirated slate here and you hit water. There's also the fact that one of these things that people don't think about is you have to put in ramps and it will blow your mind how much a ramp takes away from your parking. So again, the shape of the building really, really, really matters. And so many, like when the whole center plan was coming out, it was like an arms race. People snapping up properties on the quarter and then they'd get a masking drawn. You're like, wow, look at that. But the building would be built like, you know that, you know when you're playing Tetris? - Yeah. - The one that's like, looks like a lightning bolt? - Yeah. - These are the buildings people were coming up with on some of these lots. - Yeah, yeah. - Just to make them fit. - Yeah. - And so you'd get this number of like buildable square footage but you would never build that building. - Yeah. - And you could never park in that building. So people were still, but they're like, price per door, price per square foot. Like you want buildable sites with good parking. Maybe I'll be proven wrong. Maybe we'll all be riding our bikes, man. You and me will be on a tandem bike. Don't over drink some night. Like maybe we'll get there. - Yeah. - I'm not there yet. You know, I'm parked down the road, are you? Where are you? - Yeah. - Did you walk or did you park? - I know, I drive to work. - Yeah. - 100%. And I love the passion about the point because in the end, these are all guesses on what may or may not matter in the future, right? And you know, we're in a city that like many cities in Canada, or in Canada rather, is quickly growing. And we're adding tons of people. And I feel like Halifax is really maturing from a small city to a large city mentality in many ways. And these are the changes that are gonna happen that traffic's getting worse, et cetera. How does that affect people's desire to drive a car, et cetera? But back to the assessment of the value of a piece of vacant land. So say you have an empty lot. What are some of the important, again, on the sort of quality of the lot side, let's say environmental, things like that. What really matters, you know, you talk about your technical team of who can help you assess a physical, you know, building. What about assessing the property? And, you know, you talked about water, you talked about, you know, et cetera. How do you look at that? - Yeah, I love existing environmental. I don't think it's the be-all and then all you can get environmental during your due diligence. And if you're gonna dig way down anyway, you can pump that sucker out, whatever dirty is down there. But little things, corner lots are fantastic because you can determine, you know, where you can bring your traffic in and out of the building. That is really important to me. Beneficial grading, right? Because of how they measure stories like relative to the street front and average and all these things, like you can have some beneficial grading opportunities. It can also significantly help again with your parking situation depending on the grading. The shape of the lot, like you start to learn really quickly that, you know, frontage really matters. If they, what you want is one elevator stack and a straight line hallway and symmetrical units. - A hundred percent. - That's what you want. - Almost like a shoebox shape. - Almost like a friggin' hotel. - Yeah, absolutely. - Like, that's what you want. - That's what you want. - The hallway down the middle that splits them up. - Exactly, exactly, no wasted space. The other thing that was really always important to me just because of my financial situation is the ease of financing it and the potential for some revenue in the interim, right? If you buy empty dirt and it's not bringing in anything, like you're paying a higher rate, there's no revenue whatsoever, it jams up your financing because it's pairing just as debt service and no income. And it's actually costing you money month to month, right? And that eats away at any perceived profits you hope to one day have. So this is why I love getting land opportunities where it's like, and there's a little house there, right? Like, and then you rent the house for $2,000. - Yeah, it covers your property tax. - Right, yeah, yeah, so that has always mattered to me and I haven't always had it, but when you do, it's great because then you finance it conventionally, like you could buy a house and you're putting 20% down and getting a residential mortgage, as opposed to putting at least 50% down and paying commercial rates, like that is way better. And then you rent the house, like that is a huge swing in the value of the property, which again, it's like, well, maybe I value this piece of land here much more than that piece of land there, purely because of the ease with which I will finance it and be able to carry it for the next four years while I get my project going. So those little things matter too. - Speaking of which, you mentioned that you also have bought land banking opportunities with commercial real estate on them. I know that some real estate investors are fearful of going into new types of real estate just because they're not familiar with it. You know, they're familiar with residential, they don't know commercial, et cetera. What advice do you have, you know, if you're gonna buy a land banking opportunity and it has a, you know, a retail location on it for a time period or a small office building, how have you dealt with, you know, sort of jumping into a new lane? - Yeah, I mean, I would be in that category where I don't like doing what I don't know every time I've done something I didn't know. Either it only worked out if I got super educated on it. The times where I just went in and said, I don't know and I'll either completely trust someone else without doing my own due diligence. It's never worked out. Again, I've had success surrounding myself with people who kind of knew what these things were about before I knew what they were about. And they've been very good to me that I could call them and ask them and they could walk me through it, right? Like the first, one of the first commercial leases I did, I actually, again, I found a seller who was cooperative and a lot of these spaces were kind of owner occupied sites, right? So the owner was running their business out of this space and now they're not. They're looking to sell it. They know the business doesn't necessarily have any value but the land has value. But they also know the desired tenant because they were the tenant in there. So a couple of times a tenant has come with the purchase and the sellers have been so good to me that they have structured the lease even. So these are really unique times where like especially circumstances but that sort of idea of, you know, just asking for help on the stuff you don't know. And if you want to do it, I generally believe you will want to learn about it. If you're going into something and you're like, yeah, I don't really want to learn about this, then you probably shouldn't be doing it, right? So. (laughs) - Well, you're going to learn about it regardless because through, you know, your own mistakes or in my experience, through my own, you know, bullheadedness, I end up crashing into a bunch of walls and have no option but to learn it in order to dig myself out of the pit that I've fallen into. - Yeah, like I like trusting other people to do their thing but also like you've got to do at least your part of the bargain, right? 'Cause no one's going to do the whole thing for you. - 100%. Cool, we've run out of time. So we're going to have to do an episode two at some point 'cause I had a bunch of other things I wanted to get into with you. - Yeah, I'm so sorry, man. - No, no, this was, you know, I can tell you do and I love getting into the weeds of understanding the methodologies of investment experts and that's what you are in the end is an investment expert, you know, in residential properties, I am not and you know, I talk a lot of my show about different asset allocation, you know, decisions, private equity versus public equity, you know, et cetera. And so I really wanted to have a person that understood the nuts and bolts, you know, personally of how do you make decisions around residential investment and you hit the nail on the head? - Yeah, we got the surface there at least. So hopefully some people took something out of it. - A hundred percent. - Yeah. - Thank you so much. - Love chatting with you, man. - Yeah, thanks, man. (upbeat music) - I'm Luke Hanson, McDonald. This was Beyond the Family Business. Please review and subscribe. Thank you very much. Talk to you next time.