If you’ve been in the commercial real estate forum for any length of time you are familiar with the term “assemblage”. To synopsize….it is the combining of multiple lots under one ownership. We believe the Assemblage is one of the most potent return drivers of any tool in the Added Value arsenal.
There are two primary elements as to why Assemblage is such an effective return driver:
- An asset may have a stranded or confined Value because the use and potential use are confined by Zoning. Confinement might come in the form of the lot being too small or there may be easements, wetlands, etc. that reduce the usable portion such that development is not feasible. However, an assemblage with one or more contiguous neighboring properties might create a use and Value Metamorphosis. Examples of this might be the best way to illustrate.
Recently we did a Development Feasibility Valuation for two lots in Montclair NJ. They are each about 15,000 SF but with different dimensions. Zoning provides that if a lot is large enough and is contiguous to a residential zone the number of units per acre available is 28. If it is not next to a residential lot the max yield is reduced to 18 units per acre. Ordinance also provides that the lot has to have 100 ft frontage to garner 28 units per acre.
One of the lots is contiguous to a residential zone but the frontage is not 100 FT. The other 15,000 SF has the 100 FT frontage but is not contiguous to a residential zone. By assembling these two lots they each have 28 units per acre capability…resulting in a 36% Value Increase for each….without ownership spending a dime.
Last year we completed a 9 lot assemblage…that took two years to execute. None of the lots could be developed on their own and were purchased by one investor for Investment Value…which cumulatively was $5,000,000. The lots combined are over 50,000 SF and have six story mixed use development capability. The Assembled Development Land Value is about $12,000,000. Has to again be noted that the owner did not improve the properties in any way and did not get any type of development approval to garner this 240% Value Increase…they simply put the lots together.
- The other primary element pertains to “scaling”. In a nut shell…the larger the development…the higher the per unit margins. In a large project material cost, labor cost and softs such as approval and debt service all become less per unit through amortization.
On the income side……
A large project has the ability to increase per unit income through what we refer to as “the oasis affect”. A large project, whether in a good or fair location, can create its own environment…one that drives demand and per unit income higher than would be conventionally available in the area.
Each assemblage strategy has at least slightly different goals and capability. Generally….the availability and type of lots, zoning and a slew of other factors will dictate or define the goals…but it is rare when the Power of Assemblage cannot be leveraged to achieve substantive and low risk returns.