Partnering All the Way

Under terms of a rolling option agreement, William Thomas Homes was required to take down finished lots under a predetermined time line. Because it owned a 50% stake in the land development company, it received the lots for half the retail markup.

July 31, 2003

This article first appeared in the PB August 2003 issue of Pro Builder.

Tom Stephani
Photo by Marc Berlow

Project: Dole Crossing, Crystal Lake, Ill.

Builder-developer: Tom Stephani, William Thomas Homes Inc., Crystal Lake

Project size: Approximately 8.5 acres

Proposed development: Build a small, 23-unit, traditional neighborhood with walking links to an existing downtown shopping district.

Landowner: An estate for a woman whose family owned the property for decades

Site considerations: Decades ago the site had been home to a large greenhouse that supplied orchids to the Chicago wholesale flower market. The buildings had long since been carted away, and all that remained were a couple of shacks, an old foundation and quite a bit of broken glass. Trees and foliage covered most of the site.

Deal story: Stephani knew of the family who owned the parcel and through a mutual acquaintance received an introduction to a family member who told him the property was in an estate that had not been liquidated. He made this contact just months before the piece was set to hit the market.

Four existing homes, in white, were incorporated into the new community.

During several conversations, Stephani says, he gradually got to know the landowner enough to set up a meeting to make a proposal. Before making that proposal, Stephani learned more about the site through public records. The title was clean, but the plat, originally laid out in the 1800s, probably needed fine-tuning. At the meeting, Stephani brought a preliminary site plan detailing home sites and a central park with gazebo. He also brought early sketches of the types of homes he wanted to build.

The vision he presented appealed to the seller, and so did the enhanced yield of the property as a residential use. Based on the positive response from the landowner, Stephani offered the following deal:

William Thomas Homes would sign a purchase agreement in which it would provide the entitlement expertise and the due-diligence expenses required to get a tentative map put in place. Twelve months were allowed for this work.

With entitlements in hand, the builder and the seller formed a third entity - all set forth by the original agreement - a limited liability company that would take title of the site.

With a 50-50 stake, they jointly subordinated the land to a bank for development funds to create streets and finished lots.

Under terms of a rolling option agreement, William Thomas Homes was required to take down the finished lots under a predetermined time line. Because it owned a 50% stake in the land development company, it received the lots for half the retail markup.

If absorption was slow, the agreement mandated that the land development entity would market the lots to other builders. Absorption was strong, so this clause never was triggered.

"It is rare in life that things turn out exactly the way you envision them or better," Stephani says. "In this case it turned out exactly and better."

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