Dissecting A Deal

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Topics: Negotiating

 

Sometimes we leave money on the table because we’re focused solely on one aspect of a transaction rather than looking at all the possibilities. An easy example of this is when we have a chance to bid at a foreclosure sale on a property that seems unfit for human habitation, and we don’t bid, letting it go back to the lender. In so doing we let the undesirability of the property distract us from considering the desirability of the land it is situated on which sometimes can be worth many times the value of the improvements.

In one such instance, the lender set no minimum bid, and either because of the condition of the property or because they hadn’t taken the time to check it out, none of the other bidders bid on the property. We bought it for $5000. When we put on our rubber gloves and looked it over, it became obvious that had been the target of zoning and health inspectors for a long time. Legally, the foreclosure should have wiped out city zoning code enforcement liens and penalties, but just to make sure, we contacted the zoning code enforcement, tax, minimum housing standards, and health departments. When the smoke cleared, they all agreed to void their liens if we’d tear the building down.

This building was so bad that once it had been removed, the values of nearby properties rose. So did the value of the lot on which it had stood. Here we were with an in-fill lot to which all city utilities were connected which we sold for $50,000.

That taught me a valuable lesson which I try to use with every property I buy, and one which America’s premier wheeler dealer of the 1950s and 1960s, Bill Zeckendorf, had espoused in his book: Always consider what the land and surrounding properties would be worth if the property you are buying were vacant land; then add the value of the improvements to this figure to see what you should pay for it.

In Zeckendorf’s case, right after WWII, the worst part of New York’s Manhattan was the stock yards. They were so smelly that even today, apartments that faced them have very small windows on that side to keep the odor out. At this time, American was vieing with France to get the United Nations world headquarters located here, so Zeckendor went to work.

First, he Optioned all the surrounding vacant space at fifty cents a foot. Next he went to the Rockefellers and sold them on the idea of buying the stock yards, cleaning them up, and donating the land for a United Nations complex. They agreed if they could get a tax deduction for the $5 million cost. Zeckendorf went to Washington and got Congress to vote a special bill to this effect.

The Rockefellers went ahead with the plan and suddenly this part of New York city was in demand for all sorts of firms that might benefit from being near the U.N. The price per square foot went up to $8 from .50 and Zeckendor made millions of dollars when he cashed out his Options.

We can’t do what he did, but we can certainly emulate his concept of looking at all the possibilities and taking the appropriate action.

We’ll tell you what how we’re implementing Zeckendorf’s concept on a regular basis next time.

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