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  • Maximizing Land Value: The Jerome Maldonado Approach to Real Estate Development and Investing [Ep180]
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November 21, 2023

Maximizing Land Value: The Jerome Maldonado Approach to Real Estate Development and Investing [Ep180]

In today's episode, I am joined by Jerome Maldonado, a seasoned real estate investor with a wealth of knowledge and experience. Together, we delve into the current investment climate, the challenges and limitations of value-add investing, and the strategies for purchasing undervalued land for development to maximize returns. Jerome shares his journey from decorative concrete to owning over a million square feet of retail and 1100 doors, highlighting his unique approach to ground-up construction and syndication. Join us as we explore the intricacies of real estate development, financing, and the opportunities in smaller real estate deals. You won't want to miss the valuable insights and practical wisdom shared in this episode.

Episode Timestamps

  • 02:31 Transition from concrete business to real estate.
  • 06:09 Using stocks to buy property for returns.
  • 07:06 Annual stock return utilized for capital gains.
  • 11:40 Refinancing challenges in a volatile property market.
  • 14:10 Couple sells land, negotiates and closes strategically.
  • 18:32 90% communication, 90 days due diligence.
  • 21:15 Project progressing, focusing on zoning and density.
  • 25:59 Complex real estate investment process requiring phases.
  • 28:51 Strategic, thorough, and reliable in closing deals.
  • 31:31 Small property in Phoenix piques developer's interest.
  • 33:23 Bought land, $300k, big builds, institutional money.
  • 38:57 Beware of crowded market with enticing promises.
  • 41:04 Raising capital strategically can lead to risks.
  • 43:54 Strategic education is key in tough times ahead.

Episode Table of Contents

  • Increasing Returns Through Entitlements and Land Value Creation
  • Leveraging Small Real Estate Deals
  • Strategic Entitlements Dramatically Increase Raw Land Value
  • From Multilevel Marketing to Maximizing Real Estate Returns Through Strategic Land Value Investments
  • Boosting Land Value Through Entitlements and Higher Density Allowances

Increasing Returns Through Entitlements and Land Value Creation

Increasing Returns Through Entitlements and Land Value Creation
Photographer: Federico Respini | Source: Unsplash
Discover How To Save Taxes and Build Wealth

Ground-Up Development Over Value-Add

Darin asks Jerome for his perspective on good investment strategies given the current high-interest rate environment. Jerome strongly advocates for ground-up development over value-add deals right now. He explains that his company's model for ground-up development eliminates some middlemen, allowing them to maximize returns through entitlements and increased density. In contrast, Jerome notes that value-add deals are constrained by assets purchased just a few years ago at lower cap rates. With cap rates and interest rates rising, it is difficult to add enough value and increase rents sufficiently to deliver the returns investors expect.

Increasing Land Value Through Entitlements on Undervalued Purchases

Jerome details how his company is purchasing undervalued land and using the entitlement process to significantly increase its value before development. For example, they are able to buy land now for around $10,000 per unit versus $30,000 per unit previously. Jerome explains they negotiate long purchase closes to limit upfront liability during the 9+ month entitlement period. If successful, this strategy can increase land value by 2-3 times he notes. Jerome provides a specific example where they tied up a $1.8 million property that will be worth an estimated $5 million once entitled.

Real Estate Negotiation Strategy: "Right now is a great time to negotiate, long closes."— Jerome Maldonado

Leveraging Small Real Estate Deals

Leveraging Small Real Estate Deals
Photographer: Karl Hedin | Source: Unsplash

Finding Profitable Small Land Deals

Jerome highlights an example of coming across a prime 2.6-acre lot in North Phoenix while passing through one of his developments. Although small, it was in an upper median area next to a golf course with million-dollar homes, presenting an opportunity for a 37-unit development. Nearby comparable rents exceeded $3,000 per month, allowing Jerome to pencil out a profitable deal with $400,000 NOI that he could complete without outside investors. He emphasizes that smaller ground-up deals can generate significant cashflow if the location and rents justify it.

Embracing Smaller Opportunities in Business: "And now There may be some unique opportunities in that smaller game." — Darin

Capitalizing on Partnership Dissolutions to Acquire Discounted Land Value

Additionally, Jerome shares how partnership disputes can present opportunities to purchase discounted land. He gives the example of a 1.2-acre entitled lot that dropped from $1.2 million to $300,000 due to partners disengaging after failure to develop an office building. Jerome highlights that by staying patient and engaged in dealflow, profitable off-market opportunities can arise when partnerships dissolve and sellers become motivated.

Working with Smaller Local Lenders

To fund smaller deals under $20 million, Jerome advocates for developing relationships with community banks and credit unions. He cites experiences during the 2008 recession where he refinanced away from larger banks charging excess fees into credit union loans around 4%, saving his assets. Jerome stresses smaller local lenders understand projects in their area better, allow for relationship lending, and can provide more favorable terms by keeping loans on their own books.

Strategic Entitlements Dramatically Increase Raw Land Value

Strategic Entitlements Dramatically Increase Raw Land Value
Photographer: ALAN DE LA CRUZ | Source: Unsplash

Strategic Sourcing of Capital

Jerome emphasizes utilizing multiple sources of capital to fund real estate development projects while minimizing equity loss. He favors government-backed loans from HUD and Freddie Mac despite their longer closing timelines. Additionally, Jerome leverages bond funds, private credit funds from ultra-high net worth individuals, and institutional capital.

Real Estate Investment: "So 90% of it is communication."— Jerome Maldonado

The extensive timeline involved in securing full entitlements and approvals requires strategic capital sourcing. Jerome requests a minimum of 90 days for hard due diligence on land purchases. This covers predevelopment meetings with the city, architectural and engineering plans, neighborhood outreach, and zoning approvals. During this period, he invests nonrefundable capital into entitlement activities to demonstrate commitment and reduce seller liability.

Once comfortable with municipal cooperation on a development site, Jerome will raise LP capital against the land purchase. He creates thorough offering decks and performance analysis at this stage. The capital raise reimburses Jerome's initial investments and prepares for closing on the entitled land. Bank loans can then be secured against the appreciated land value to take out initial investors. This strategic sourcing and timing of capital demonstrates Jerome's expertise in real estate development finance.

Driving Dramatic Land Value Appreciation Through Entitlements on Raw Land Purchases

Jerome emphasizes the value creation potential through entitlements on raw land purchases. By securing land use approvals and density bonuses, the basis in a site can appreciate 2-3 times. For example, he is targeting a 165-185 unit density approval on a multifamily site acquired for $1.8 million. With approvals, this land could be worth $5-6 million.

The extended entitlement process involves neighborhood outreach, planning and zoning approvals, engineering, and architectural plans. Jerome negotiates delayed closes on land purchases to avoid excessive upfront carrying costs. Instead, he allocates capital into the entitlement activities themselves to demonstrate commitment and reduce seller liability during the approval period.

Once entitlements are secured, the substantial appreciation in land basis allows Jerome to bring in construction financing. At this point, any initial land capital investors can be taken out at a profit. The value creation through entitlements is a cornerstone of Jerome's ground-up development strategy in this market.

From Multilevel Marketing to Maximizing Real Estate Returns Through Strategic Land Value Investments

From Multilevel Marketing to Maximizing Real Estate Returns Through Strategic Land Value Investments
Photographer: Nik | Source: Unsplash

From Multilevel Marketing to Maximizing Land Value

Jerome has a diverse background, originally starting in multilevel marketing before an accidental pivot into real estate after his previous business was shut down in 1997. He began with decorative concrete, then investing in single family homes and retail before expanding into multifamily units. His experience spans over 30 years across various facets of real estate and business.

Wealth Building Mindset

According to Jerome, real estate provides immense potential for building wealth in multiple ways – through returns like cashflow, appreciation, cost segregation, and depreciation. He takes a strategic approach to investing not just in real estate but also dividend-paying stocks, using them together as tools to generate capital. Jerome emphasizes looking at every investment vehicle, whether stocks or real estate, through the lens of wealth building.

The Importance of Understanding Taxes: "The biggest expense in life is taxes."— Darin

Boosting Land Value Through Entitlements and Higher Density Allowances

Boosting Land Value Through Entitlements and Higher Density Allowances
Photographer: Cam Adams | Source: Unsplash

Maximizing Land Value Through Entitlements and Increased Density Approvals

Jerome outlines the detailed process for taking a land purchase through entitlements to maximize its value. This begins with negotiating a long close to reduce upfront liability during the entitlement period, which typically takes around 9 months. They invest in due diligence by meeting with the city, hiring lobbyists for neighborhood outreach, coordinating with architects and civil engineers, and working through planning and zoning. This requires significant time and financial commitments but allows them to gain approval for increased density on the land. With full entitlements, Jerome notes they can often double or triple the land's value from the purchase price.

5 Step Process Ad

Securing Construction Funding

Once land is fully entitled, Jerome's team begins working on permits, bidding for general contractors, and securing their construction loan. At this point, they are able to take out the initial investors from the land purchase. This allows them to build with institutional money and maximize their returns while minimizing investor equity in the deal. Jerome emphasizes they maintain 100% ownership on their properties, rather than syndicating them. They may partner strategically with other firms to offload asset management, but keep full equity.

Where To Find Jerome Maldonado

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Darin Batchelder


Wealth creation through real estate provided me with a new passion to get the word out and let others know that they have an alternative to investing in the stock market.

If I can inspire and educate just one person to take action that results in life changing wealth creation then the work to launch and grow this podcast is well worth the effort.

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