As the new developer for this project, your goal is to select the option that maximizes returns and convinces the lender to sell the project to you and stay in the deal financing 80% of cost, convince the builder to execute a lot takedown agreement with a builder deposit (to be used as equity) and a reasonable lot escalation throughout the project. Create a thoughtful plan to achieve your objectives as the developer while taking into consideration the other players and their objectives.
As the Developer, issues to consider are as follows:

1. First evaluate the two builders’ offers (only one can be selected for the project)

a. Builder #1

i. \($250\),000 deposit ii. \($105\),000 per lot iii. 1% lot inflators every 10 lots iv. Resulting profit margin per house

b. Builder #2

i. \($150\),000 deposit ii. \($110\),000 per lot iii. 1.25% lot inflators every 10 lots iv. Resulting profit margin per house 2. Purchase price (via PPM) – Lender is Seller and also provides financing

a. Price

b. Terms for repayment (% of lot sales)

c. Accelerator

d. Equity requirement

e. If the market picks up, how will the bank disallow the owner from price escalation?

f. The new financing will be a loan facility charging 7.00% interest paid current with a maximum funding facility amount of \($5.0\) million.

3. Investor returns (developer’s raise of required equity)

a. Capital required

b. Required returns

c. Duration equity is outstanding

d. Who guarantees the debt? What guarantees debt?

e. Initial equity to cover sales start-up; production start-up, etc. What is source for total equity?

f. How long will the equity contribution carry the project if sales stall?

g. Once the project is started, it will be difficult to reposition with new product. What is the exit for the equity position?