Sizing a seventy five thousand dollar LP check into a land subdivide raise with no preliminary approval yet
Consider a sponsor with 120 acres under contract at $6,800 an acre, $816,000, planning twelve 10 acre lots at a pro forma of $135,000 a lot for $1.62 million gross. A $900,000 raise with a $50,000 minimum, an 8 percent pref, and a 70/30 split above that to LPs is a common structure for this kind of deal. What tends to look right in a deal like this: a sponsor who has done two similar splits before and can produce closing statements from both, 1,400 feet of paved road frontage, a written minor and major subdivision checklist from the county, and retail comps on 10 acre pieces supporting something in the $120,000 to $145,000 range depending on access and soils. What should give any LP pause is entitlement risk sitting entirely on their money. If there is no preliminary approval yet and the purchase contract has a short feasibility period after which the deposit goes hard, with the sponsor planning to close on bulk land value and pursue approvals afterward, all of that risk sits inside the raised capital. If approvals come back requiring internal road construction to county standard instead of a shared access easement, that alone can swing a project by six figures against a modest site work line. Two things worth asking any sponsor in this position: whether LP money can fund in tranches against approval milestones rather than all at close, and what the site work contingency actually covers in the documents. A securities attorney should review the offering documents regardless; the deal terms themselves are a separate question worth working through on their own.
