How would you solve this problem?
I thought HN crowd might enjoy noodling this. I am a commercial real estate broker working with a large developer in a major North American city. This is the type of prisoner's dilemma I face.
Let's say we try to assembly a lot that consists of 10 properties with different owners (different sized lots). Developers can pay around x per buildable square foot, and that amount is higher for each individual owner than what they could get if they are selling their property individually. The fair way to pay everyone is to divide total amount the land is worth to the developer proportionally by lot size to each owner.
This is the problem that always arises: people get greedy. Not everyone, but at least 2 out of these 10 owner will be unreasonable. If everyone, or enough people get greedy, it kills the deal. On the other hand people who are greedy and hold out get more than people who are more amiable. So, from the stand point of the owner who wants to maximize their proceeds being greedy works, but only if everyone else is not.
I only get paid if the deal closes. If you were me how would you approach this prisoner's dilemma from my side?
Let's start with I have amount M that the land is worth, I have 10 owners with different sized lots. Now what? I have a goal to buy up the 10 lots at M or below. What should my strategy be here? I have to tie all the lots at the same time (I have 60 days from the day the first property is tied up, to buy the last one).
Thank you for your thoughts! The land is worth what someone will pay. The way parcels are consolidated is slowly over time and anonymously...if at all. Your large developer, if they have a track record of similar deals, knows this. Assembling a parcel in sixty days is absurd and you are wasting your time blinded with phantom dollar signs in your eyes. Good luck. No, they don't do slowly. Very few of them will buy and hold, it's money being tied up doing nothing. And you have to be fast, longer you wait greedier people get, we've done this many times, the same story repeats itself every time. As per what is land worth, for a developer, it's a an x amount per buildable square foot (which they need to approximate based on the guidance of their planners, before they rezone). There is a cost premium for speed. Fast cheap good, pick two. Fast and good isn't cheap. That's where you are. Fast and cheap isn't good. Just make eight of ten parcels work. Cheap and good isn't fast. They are not trying to get it for cheap though, they are paying large premium to what it would sell for individually. But, of course, there is a limit to what they can pay. So, either everyone gets more than they would individually, but if they are too greedy, no one gets anything. 8 out of 10 can work if the 2 are at the ends, and that often happens, greedy one makes herself an island. Doesn’t work if they are in the middle. Then they ruin it for everyone. Unwillingness to sell isn’t greed. The landowners aren’t part of the dealflow. There’s no quid pro quo. It’s an arms length transaction. The reason people hold on to land is that it’s less bother than finding an alternative repository of wealth. Stocks go to $0. Land doesn’t. And there’s emotional attachment that isn’t there for stocks and bonds. Some people are happy to cash out and see the place the kids were raised paved. Some aren’t and it would hardly be a surprise if such folks don’t cotton much the sort of change to the land that’s on the table. Like I said long term. Go back in time and take that lady a pie after church fifteen years before the developers come town…’out of town developers’ that’s the phrase you’re up against.