Virtual Deal Simulator
The Residual: Ground-Leasing the Kowalski Corner
A widow's inherited corner lot, a developer's pro forma, and the math that decides who owns downtown Halsey Falls a hundred years from now.
You’ll Practice
- Calculate residual land value from a developer's pro forma (completed value minus hard/soft costs minus required profit) and explain it in plain language to a non-institutional owner
- Convert a lump-sum residual land value into an equivalent capitalized ground rent using a land yield, and compare it to an existing income baseline
- Distinguish subordinated vs. unsubordinated ground leases and articulate the risk/financing tradeoff each creates for the landowner
- Assemble a negotiating document package (appraisal, cost verification, comps, title, environmental) that supports a residual land value position independent of the developer's own numbers
- Structure a limited, capped subordination with landowner protections (notice-and-cure, reversion) as a middle path between full subordination and refusing to negotiate
- Recognize how an owner's stated priorities (legacy ownership vs. near-term liquidity) should drive the choice among ground lease and sale structures
The Corner Lot on Ninth and Larkin
Dolores "Dee" Kowalski is 71 and owns a 1.8-acre corner parcel at Ninth and Larkin in downtown Halsey Falls outright — no mortgage, no partners, just a deed her father Walt left her when he passed in 2004, four years after he closed the doors on Kowalski Hardware, the store that stood on that corner for over forty years. Since then the lot has mostly sat empty — paved over, fenced, and rented month-to-month to Halsey Van & Storage for $1,800 a month so their trucks have somewhere to park overnight. That changed three weeks ago, when Marcus Feld, principal at Brightline Multifamily Partners, mailed Dee a letter proposing a long-term ground lease. Brightline wants to build The Foundry on Ninth — a 220-unit apartment community with ground-floor retail — on Dee's corner. Feld's pro forma pencils the completed, stabilized project at $24,000,000, against $16,500,000 in hard and soft construction costs (not including the land) and an investor-required profit of 15% of completed value. Dee has never negotiated a real estate deal in her life. She called your desk because her nephew told her to "get somebody who actually knows this stuff" before she signs anything — or, for that matter, decides to just sell.
- Site
- 1.8 acres, corner of Ninth & Larkin, downtown Halsey Falls
- Current owner
- Dolores "Dee" Kowalski, 71 — sole owner, free and clear, inherited 2004
- Current income
- Month-to-month gravel lot lease to Halsey Van & Storage, $1,800/mo ($21,600/yr)
- Prospective developer
- Brightline Multifamily Partners LLC (principal: Marcus Feld)
- Proposed project
- The Foundry on Ninth — 220-unit apartment community with ground-floor retail
- Completed (stabilized) project value
- $24,000,000
- Hard + soft construction costs (excl. land)
- $16,500,000
- Developer's required profit margin
- 15% of completed value
- Structure under consideration
- 99-year ground lease vs. outright sale of the fee