Understanding Real Estate Valuations for Development With Dillon Cook – Ep. 031

About the Guest

I am really excited to share this next conversation with all of you. Dillon Cook is a Managing Partner at Range Realty Advisors in Dallas, TX. Dillon has actively participated in the acquisition and disposition of over $100 million in properties across north Texas for individual and institutional clients. At Range, he specializes in the acquisition and disposition of mixed-use commercial and residential land. He works extensively with many local, regional and national developers and home builders. Dillon was born and raised in Dallas and graduated from Highland Park High School. He received a bachelor’s degree from Texas Christian University in Fort Worth.

Range Realty Advisors is a full service commercial real estate brokerage, advisory, finance, and investment firm. Their clients include individual, institutional and international investors, developers, family offices, and governmental entities. They represent clients seeking to acquire or sell real estate assets and assist in maximizing the return on those assets. To that end, they consistently add value to real estate properties through procuring entitlement and regulatory approvals; enhancing property value through infrastructure expansion; facilitating public/private partnerships; and negotiating economic incentives from municipalities and other governmental entities.

In this episode, we are going to discuss how investors can determine the highest and best use for raw land, how property valuations shape the development process going forward, and we take a little detour to dive into the recently popularized “for-rent” single family housing phenomena. As you will hear on the show, he brings tons of experience on the subject of real estate brokerage and the amount of work it takes to ultimately market deals.

Main Take-Away’s From This Show

This was an extremely fun show to host. Dillon brought an enthusiasm about real estate and entrepreneurship that was second to none. He’s fairly young but has already proved himself in the challenging field of real estate brokerage. The usual success stories in brokerage come from those that have been in the business for many years. Dillon’s work ethic and enthusiasm has quickly pushed him to great heights in the brokerage world as a managing partner of Range Realty Advisors in one of the largest real estate markets in the south, here in Dallas, Texas. The main topics of the show come from a deep understanding in the valuation process that Dillion possesses in real estate brokerage:

1. Brokers put in a massive amount of background work when preparing a property for commercial sale.
2. There is a lot that goes into determining a property’s “highest and best use”. Many of these aspects are not always clearly apparent.
3. Single-family built-for-rent developments are a growing niche of real estate that has been gaining some momentum recently.

As always, I will dig into each of these “take-away’s” every week on the blog. So, without further a due, here we go!

Brokers put in a massive amount of background work when preparing a property for commercial sale.

It’s not just golf tournament’s and social mixer’s for commercial real estate brokers. Dillon highlighted that very well in our discussion. The role of a commercial real estate broker includes a variety of tasks that most people wouldn’t even imagine. According to Medium.com, “ The broker has to be prepared to work collaboratively with clients over an extended time period while they do their research, comparisons and legal due diligence to ensure they are committing to the right property on the right terms.” I think this really sums it up nicely.

The role of a broker is to essentially assist in buying, selling, and leasing of properties with the use of commercial purposes in mind. This is all easier said than done. First you need to obtain clients that trust you in their buying, selling, and leasing needs. This requires networking, branding, and referrals at a minimum. Then the real work starts. They are then tasked with providing consultation on agreements and market values, coordinate viewings of potential properties, and act as an intermediary on commercial property transactions.

Not to mention, many of these actions have a much longer timeline than typical residential real estate transactions. Therefore the average broker needs to be prepared for long stretches of feast or famine within the normal real estate cycle. As Dillon alluded in the show, this job isn’t for the faint of heart. It requires long hours of dedication to become successful in commercial real estate brokerage. However, if you do put in the work, the rewards can be truly fantastic.

There is a lot that goes into determining a property’s “highest and best use”. Many of these aspects are not always clearly apparent.

The term “highest and best use” gets thrown around a lot in real estate clubs and other various organizations, but what really goes into this determination? And how do you know that you’ve truly arrived at the highest and best use for the property? Who determines what is truly the highest and best use for a commercial property?

I love this paragraph describing the “Four Tests” of highest and best use from workingre.com “The four tests of highest and best use are: (1) legally permissible (2) physically possible (3) financially feasible and (4) most profitable. The first two tests are interchangeable in order and, in many circumstances, the last two are combined. Steps Three and Four (financially feasible/most profitable) cannot be determined until the first two steps are analyzed.” This is a very clear way of stating what goes into the determination of highest and best use from a 30,000-foot vantage point.

As we discussed in the show, all four of these tests are at least somewhat tackled in the due diligence performed by Dillon and his team at Range. They are more focused on the financially feasible and most profitable tests as this is what they are most familiar with. However, they consult other professionals in the area to do some additional digging on the legally permissible and physically possible aspects of a potential land use. They bring in engineers, architects, and other design professionals to try to nail down the physical limitations of a certain piece of property. As you heard, there is a lot that really goes into this determination.

Single-family built-for-rent developments are a growing niche of real estate that has been gaining some momentum recently.

This last take-away is one that I find extremely interesting. can get into real estate development without having millions in the bank. The Single Family Build for Rent development buzz has been a fairly new phenomena here in the DFW region, but has definitely caught the attention of real estate professionals across the United States. Also known as BFR or B2R, this trend is a rather unique one that is finding an emergence during this COVID-19 pandemic.

As discussed, some small families are looking to move into a house instead of a standard apartment unit for all sorts of reasons. Some move so that they have a yard for their newly adopted dogs. Others want the familiarity of the house without paying for a large down payment. Often it has been mentioned that millennials and Gen Z-er’s are not looking to own anything. They like the flexibility of renting without the permanence of owning.

Real estate developer’s have noticed that the single-family home rentals often stay rented for longer durations. The turnover is much less than in apartments. With many seeking longer rent durations and increased renewal rates. These types of communities also see higher rent increases as highlighted in this Forbes.com article “Rent increases have consistently outpaced those in conventional apartments, and sometimes the margin is quite wide. “Across our Avilla neighborhoods, we have seen rent growth rates of 6% to more than 11%,” said Jacque Petroulakis, executive vice president of NexMetro. NexMetro developed 11 communities in the Phoenix area between 2014 and 2019, and now they are expanding into more areas.”

This is a very interesting market sector to watch and I’d be interested to see how the trend continues as we move into different generational shifts.

As you can see from the take-aways above, this podcast episode was full of great information on the topic of the commercial real estate brokerage and how it affects your next real estate development project. As always, if you have enjoyed the content and the show, please subscribe to the show below and share with your friends! We’ll have many more great discussions on the shows to come.

To Learn More About Dillon Cook and Range Realty Advisors, Check out the Following Websites:

https://www.linkedin.com/in/dillon-cook-1a988b69/
https://rangerealtyadvisors.com/about-us/

For more on funding your next Real Estate Development Deal, check out Episode 21 with Tony Holzbach to give you a perspective on funding your deal through a financial institution.

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