Pricing a participation in a $310k land loan where the borrower's plat isn't approved yet

I'm looking at a $310,000 first position private mortgage on 46 acres, offered to me as a $100,000 participation. Borrower's plan is five lots. I'd rather understand this than own the dirt myself, so the questions I'm sitting with are all about how the loan behaves if the plan doesn't.

The file as presented. Purchase price $391,000, borrower putting in $81,000, so the loan is at roughly 79 percent of purchase. Appraisal came back at $402,000 as bulk acreage and $560,000 as five finished lots, which is a discounted retail total the appraiser called out separately. Two year term, interest only, one point in, borrower pays the survey and plat costs out of pocket.

What I'm weighing.

First, which value the loan is really against. At $310,000 against $402,000 bulk, it's 77 percent of as-is, which is high for raw land in my reading. Against the $560,000 finished figure it's 55 percent, which sounds fine and describes a property that doesn't exist yet. If approvals stall, the collateral is the bulk number, and 77 percent of a bulk land appraisal in a market where a foreclosed 46 acre parcel sells to one of very few possible buyers is not much cushion.

Second, the release schedule. Sponsor's draft releases each lot at $62,000, five lots, $310,000 total, so pro rata with no premium. That means after two releases I've got $186,000 outstanding against three unsold lots, and the three that sell last are usually the three with the worst access or soils. I'd want the release price front loaded, something like $75,000 for the first two and the balance spread after, which keeps the loan covered by the weaker collateral. Whether the borrower accepts that changes his own cash flow in year one materially.

Third, the thing I can't price at all. There is no preliminary approval. The county's checklist mentions a stormwater review once you exceed four lots, and the borrower's plan is five. So the difference between four lots and five lots is an engineering study and possibly a detention basin, and the whole deal was underwritten on five lots at $112,000. At four lots his gross drops to $448,000 and his equity gets thin fast.

What I'm inclined to ask for is a funding condition tied to preliminary plat approval, with the loan sized to bulk value at 65 percent until then. That's $261,000, which leaves the borrower $49,000 short at closing and probably kills it.

So the actual decision is whether I pass, or fund at $310,000 with front loaded releases and a personal guaranty, and price the approval risk into the rate. I don't know what the right premium is for entitlement risk on a five lot split and I'm not sure anyone quotes it consistently. Terms and any rate structure would need to be confirmed in writing with the lead lender's counsel before I'd commit, and I'd want my own attorney on the participation agreement, since how a participant's interest is protected in a foreclosure varies by state.