The Old Man And The Sea…Of Kudzu!
I am prone to comparing rehabbing houses to fishing for Bluefin tuna.
Back when I started in the business two years back, Wicked Tuna was my father-in-law’s favorite show. A salty dog who’s been sportfishing the Caribbean Sea every weekend of his entire life, Wicked Tuna was Lenhart’s go-to television program for passing down time or relaxing after work. Since he and his wife Alba are extraordinary chefs, I was (and still am) a frequent visitor to their apartment. And over cornmeal arepas, black beans, roast chicken or asopado, Lenhart mentored me while we watched the brave deck hands of Wicked Tuna ply the vast sea for gargantuan fish.
If you’re not familiar with Wicked Tuna; that’s okay, It’s a sort of a ‘niche-y’ show. Basically, it’s a reality show: A production crew follows a handful of true commercial fisherman out in the open ocean as they angle for 1000-pound Atlantic Bluefin tuna each Summer. The Bluefin tuna is like the Incredible Hulk of the fish world: Staggeringly huge, terrifyingly fast, and none too happy about that hook in its mouth! The boats, refrigeration equipment and tackle these daring fisherman use to haul in one of these swimming jackhammers out of the sea is robust, specialized and expensive as hell, and they lose a ton of it. But when one of these guys gaffs an 800-pound fish and winch it into their ice chest, paydirt! It could bring five-figures. 10-20 of those in a season to fish all day is Lenhart’s idea of heaven.
The show was full of accidental parable: For every prize fish gaffed & wrestled into the boat, there is the one that got away; or the undersized fish they couldn’t keep, the expensive tackle lost to sharks, and sometimes just plain old bad luck. These and other costly moments give the show it’s drama. The more I watched Wicked Tuna, the more it became a sort of totem for the new career in residential redevelopment that I was undertaking. I could identify with these men, even if I wasn’t there.
Beat-up and rundown investment properties are my industry’s Bluefin Tuna. The money I put into them is my ‘boat and tackle,’ and the final closing is the trip to the ‘fish processor.’ Unlike the actual tuna fishermen; however, I can ‘fish’ all year long for houses!
Thanks be to God, and our outstanding real estate team: We’ve flipped a few fat tuna into our company’s boat, but we’ve also lost our share of financial ‘tackle’ to sharky characters & the ponderous whale of a government. We’ve gone months without an investment-grade house on the line, fought for hours with a fish that didn’t mean regulations, and had great properties almost in the boat just to watch them swim away when the deal fell through.
So I would like to present my first residential redevelopment Fish Tale: The One That Got Away! And waddayaknow…It involves water!
(Note: Not every deal is a closer. The the smart investor knows when to walk away, or if he gets burned, learn from it and grow. The value in the ones that don’t close are those lessons. So I’m writing this story down because I believe it’s instructive to real estate professionals of all types and stripes who want to understand the limitations placed on undeveloped land, and what’s involved with preparing it to be ‘buildable.’)
My story begins with the property that hooked up my line: A half-acre piece of undeveloped land deep in the sweet spot in East Atlanta; just offshore of our first Blake Avenue renovation. I discovered the lot while putting another home on Blake Avenue under contract. That Blake property had a creek through the back of it, and my old journalist mind began wondering where that stream led. After discovering a gigantic piece of uninhabited green space in the center of the block, I dug through the Dekalb County GIS map and followed the thin blue line as it headed out of my lot, away from Blake Avenue in a northwesterly direction.
The line crossed an undeveloped stretch of Metropolitan Avenue covered over by a sea of kudzu, hiding more than an acre of prime real estate. I dropped anchor and snagged the name and phone number of the lot’s owner. To my happy surprise, he picked up! Better yet, he told me they’d been thinking about selling that land and already had a price in mind. They had been under contract in 2008, but the market suddenly collapsed and that deal didn’t close. Now again it was time to sell and I happened to call at just the right time. I signed a contract at the owner’s asking price and immediately began researching the lots.
Up until that moment, I had never purchased raw land or attempted new construction ever in my career. I was in uncharted territory, but I knew from talking with other investors that new construction, particularly new construction under $550,000 in East Atlanta, sold relatively fast and for a healthy profit. So I knew what I had to do: Get me some new tackle! I dug out all the information on the subject from my Fortune Builders education, went to an excellent primer on construction management by Working With Houses owner Frank Iglesias, and went to the City of Atlanta Planning and Site Development departments to pick their collective brains about the property.
The lots presented some very serious challenges. GIS maps did not list the property in a flood zone; however, Dekalb county plat & topographic maps showed that small blue line curving away from Blake Avenue, passing into my contracted lots, and then crossing the Metropolitan Avenue roadbed and running northwest into the other vacant lots. What’s more, the lots had zero developed road frontage; and as to why that 300-foot stretch of Metropolitan was not paved or even gravel, was no discernable answer. So the problems with the property centered on egress and water, neither of which would be easy or cheap to remedy.
Why, you ask, is a tiny blue line threatening? Three letters: EPA. The Georgia Environmental Protection Agency, to be exact. If that thin blue line turned out to be a riparian (fancy word for ‘fresh water’) habitat, I would not be able to build anything within 25 feet of it on either side. Nothing. Nadda. And within 75 feet of it, I was going to have to get a variance, meaning I was going to have to conduct flood and hydrology studies, kindly ask the East Atlanta community for permission to build there, and have an expensive engineer create an erosion-control plan to mitigate the impact these new houses would have on the 2×3 foot runoff ditch. This particular tuna was turning into a shark.
Where, exactly, that stream lay, and if it even was a real stream to begin with, was critical information. I ordered a survey and paid up for certified topography, municipal easements, lot lines, setback lines, and yes, stream buffers. The survey was going to take two weeks. In the meantime, I continued to dig into this strange new world of new construction.
As my company was in the process of renovating a home on the corner of Blake Avenue & Metropolitan Avenue, Lena and I were at the Blake property often managing the renovations. The lots in question lay on the other side of a rusting W-barrier at the terminal end of gravel Metropolitan Avenue. One could stand by that barrier and scan the entire property and not glean a single piece of helpful information; as everything, even the 30-foot-high trees, were covered in an impenetrable mass of kudzu and wisteria.
Trips to the City of Atlanta planning and site development departments seemed to bear fruit: Planning was ‘very sure’ I could get a variance from zoning, or even re-zone the parcels to fit three houses (each one potentially worth $525,000). That was exciting. Site development was rainbows and lollipops, too. They told me that if the ‘blue line’ was not classified as a riparian habitat (a drainage ditch, perhaps), than it was simple enough to put install a culvert and call it a day. Public works scoffed at my proposition that the city pave Metropolitan Avenue, but told me I could go ahead and pave it myself and deed it to them. Everyone at the City told me to get a survey to be sure. A survey would serve as the foundation for any variance or permit request.
From the beginning, my intention was to partner with a builder with more knowledge about land. From all my research I realized that this was a complicated property, calling for an experienced partner, and I found three who were willing to take a stab at it. After taking them by the property, it soon became clear that I might have a shark on the line. The best valuation given to me was less than half of what I had the property under contract for. I worked hard not to panic.
And then the survey dropped in like a Nor’Easter: That thin blue line was a bone fide riparian habitat, washing away my carefully-researched plans. I would be lucky if I could build even one house on the property. Not only that, only a tiny portion of the lot was outside of the 75-foot stream buffer. Hello, four-month variance process! Furthermore, I was going to have to culvert the ‘riparian right-of-way’ AND pave a stretch of Metropolitan Avenue myself just to access the part of the lot that was even buildable. Oh yeah, and connect the utilities. My budget was taking on water.
It was time to cut bait, but like a stubborn fisherman with his lure snagged on a reef, I couldn’t bring myself to do it. I tried to negotiate the purchase price with the owner and everything fell apart. The pole snapped and the money invested in the survey went it to the bottom of Davy Jones’ locker.
Oh, well. Like any dedicated fisherman, I simply heaved-to and moved on. A growth mindset has a word for failure: Opportunity. I learned a boatload about buildable lots from the other investors I brought to the deal. I learned not to go under contract on land without the appropriate contingencies. I learned about the process of permitting new construction in City of Atlanta. I got practice negotiating and running a deal. So what that I got hooked up on a shark? Like they say: There are lots more fish in the sea!
Afterwards, my father in law wrapped it all up with an old business adage: “Stephen, the best deals are the ones you don’t do.” Indeed.
It could have been much worse. What if I were too stubborn or over-optimistic person and just paid the contract price without negotiating? I’d be in hot water right now to the tune of six digits, not four. I kept my head and realized when the deal wasn’t a deal anymore. Furthermore, I learned enough about riparian regulations to successfully argue the case for the house on Blake Avenue before the NPU board and the city, saving the money I’d have normally spent on a permit expediter.
In less than 24 hours and I had licked my wounds and cast new tackle, waiting for one of my poles to bend. Stephen