Raw land as collateral: does the LTV cushion actually do anything when there is no income and no buyer

A borrower I have known for a while asked me to look at a 40 acre parcel on the edge of a growing exurb, split zoned, no utilities to the line, and he wants a 12 month loan to carry it while he pushes a rezoning. Appraisal on the raw acreage came in around $620k and he asked for $370k. That is 60%, which on a house I would call comfortable.

On land I am less sure the ratio means what it means on a rental. If I take a rented duplex back, it pays me while I decide what to do. Land pays nothing, it costs me taxes, and the appraisal is built on a handful of sales that may be a year old and a county away. If entitlement fails, the value that appraiser signed off on is the value of a parcel with a failed application attached to it, which is not the same parcel. Roughly a dozen states do not make sale prices public at all, so in some markets even the comp trail is thin unless you are paying for data.

The other side of it: land is where the real spread lives on the lending side. Nobody with a bank relationship is funding an unentitled rezoning play, so the borrower pays for speed, and the deals I see priced at 13 and 14 with 3 or 4 points are almost all dirt. If you cap the ratio low enough, you are effectively buying an option to own land at half price. Some lenders I have talked to think that is the best risk in the whole business.

I have not decided. Curious where the room sits on how you treat it structurally, and lien priority and foreclosure timelines on unimproved land vary by state, so anyone answering should say what state shaped their view.