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Finally, future recovery and growth possibilities also must be considered. In Phoenix, for example, oversupply has caused declining home prices, but continued job and population growth are expected to bring this market back to normal conditions.
4. Exit strategy
In today's market, the most important factor for many lenders is the definition of a clear exit strategy. A realistic exit strategy includes two primary factors. First, the land-developer must finish the lots. Second, the developer must have negotiated with homebuilders to purchase the finished lots.
Again, location, renegotiation and valuation must be addressed to facilitate homebuilder interest in purchasing.
The following questions must be addressed in a clearly defined exit strategy:
Is the project located in a market where builders want to purchase lots?
Have renegotiations yielded an appropriately priced product?
Is the land valued properly?
From a broader perspective, the lender or investor will also consider if the population in the specific market can afford the planned homes.
As the housing market in the United States continues its inevitable correction to moderate levels, many factors will contribute to successful projects. As the media cover the much-vaunted "housing crash," it is up to well-informed individuals within the industry to facilitate high-quality projects in markets across the United States.
In the end, despite market conditions, harrowing media reports and economic forecasts, people will always need places to live and homebuilders will continue to build homes for them.
Scott Wicken is a senior analyst with Mountain Funding LLC, a national private lender that specializes in providing high-leverage senior/mezzanine debt and equity to value-added commercial projects, land acquisition and development, condominium conversions and special situations requiring quick closing. The company is headquartered in Charlotte, N.C., with offices in Boca Raton, Fla., and Newport Beach, Calif. Wicken is based in the firm's Newport Beach office and can be reached at firstname.lastname@example.org.
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