🎯 Decision Memo

The basic math is straightforward and compelling:

• Purchase: $6,499,999 — this is the known, hard number
• All-in cost (Est.): ~$10,000,000 — purchase + entitlement ($750K) + horizontal ($1.2M net of Lennar) + carry ($720K) + fees + contingency
• Gross revenue (Mid): ~$14,700,000 — 330 MF units × $30K + 4 retail pads × $1.2M avg
• Net profit (Mid): ~$4,700,000 — 47% margin on cost
• Gross margin on purchase alone: 2.26x — before you spend a dollar on development, the land is worth more than 2x what you're paying

The spread is real. Even in a conservative case (300 units × $27.5K = $8.25M MF + $4.8M retail = $13.05M gross), net profit is still $3.05M — a 30% return on cost. The deal has meaningful downside cushion.

This is the single most important factor in the deal. Lennar (via Millrose Properties) is building on the adjacent tract and bringing shared water and wastewater infrastructure to the FM 812 area.

• What Lennar is building: Water and wastewater trunk lines serving the broader FM 812 corridor — BBM can connect to this infrastructure instead of building its own from scratch
• Typical cost without shared infra: $15,000–25,000/unit for standalone water/wastewater in Austin ETJ = $4.5–9.0M for 300+ units
• Cost with Lennar (estimated): $3,000–10,000/unit for connection/lateral costs = $1.0–3.0M
• Net savings: $1.0–1.5M conservatively, potentially $2M+ if connection costs are favorable
• Schedule benefit: Utility infrastructure is typically 12–18 months lead time — Lennar doing it removes the longest-duration risk from BBM's timeline
• Millrose Properties: Lennar's dedicated land/horizontal subsidiary — they have a financial incentive to get infrastructure built quickly (feeds Lennar's homebuilding pipeline)

The 60-unit range between 300 and 360 represents a ~$1.8M revenue swing (at $30K/unit). Understanding what drives this range is critical.

• What determines the count: ETJ entitlement process — density allowed under the applicable land use plan, MUD (Municipal Utility District) requirements, and site constraints (floodplain, setbacks, infrastructure capacity)
• Austin ETJ process: More flexible than City of Austin proper, but still requires county/MUD approval. Typical timeline: 6–12 months from application to approval
• 300-unit floor: This appears to be the density achievable under current zoning/land use with minimal entitlement changes — the "path of least resistance"
• 360-unit upside: Requires either (a) higher density approval, (b) more efficient site plan, or (c) re-zoning. This adds timeline and cost risk
• Revenue impact: 300 × $30K = $9.0M vs. 360 × $30K = $10.8M — $1.8M difference. At 330 mid-case: $9.9M

Recommendation: Underwrite to 300 units for downside protection. Treat anything above 300 as upside. The deal works at 300 — don't need 360 to justify the purchase.

Retail pads typically sell 12–18 months after MF lot sales begin. Retailers want to see rooftops (population) before committing to a location. This creates a timing dynamic:

• MF lot sales: Can begin as soon as entitlements are in hand — MF developers buy entitled land in advance of construction
• Retail pad sales: Typically lag MF by 12–18 months. Retailers/pad buyers want to see MF construction underway (proof of coming density)
• Revenue: $4.8M of the $14.7M gross (33%) comes from retail pads — if retail sales are delayed, it extends hold period and increases carry costs
• FM 812 corridor advantage: Goodnight Ranch and Easton Park are already delivering rooftops nearby — retail demand exists before BBM's MF units are built
• Mitigation: FM 812 frontage pads (Pad 1) should sell early — road frontage is valuable to retailers regardless of the specific MF timeline

Impact on returns: If retail pads sell at month 30 instead of month 24, LP IRR drops from ~31% to ~25%. Still acceptable, but the timing matters. Consider: can you structure a right of first refusal or pre-sale on the frontage pad?

The total project cost of ~$10M with 60% debt leaves ~$4M of equity required. Can the BBM principals fund this internally, or is outside LP capital needed?

• Option A: All-principal equity ($4M): John, Kent, and Craig fund the entire equity stack. Simplifies structure, maximizes GP economics, avoids fundraising. But ties up significant personal capital
• Option B: LP fundraise ($3.8M LP + $200K GP): Raise LP equity at 95/5 split with 8% pref and 75/25 promote. Reduces principal exposure but requires fundraising effort and sharing economics
• Option C: Hybrid: Principals fund initial equity (close + entitlement), then bring in LP capital for horizontal development phase. Reduces LP hold time and improves their IRR

Key consideration: BBM already has Thaxton Corner and potentially other deals in pipeline. Capital allocation across deals matters — $4M into FM 812 may limit capacity for other opportunities.

FM 812 is one of the primary growth corridors in South Austin's ETJ. The market thesis is straightforward and well-supported.

• Population growth: Austin metro is adding ~50,000+ people/year. South Austin ETJ captures a disproportionate share due to affordability and available land
• Major nearby developments: Goodnight Ranch (~7,000 homes at buildout), Easton Park (~5,000 homes), Whisper Valley (~2,000 homes) — all actively delivering
• FM 812 infrastructure: Road widening underway/planned, new schools being built, retail following rooftops — all signs of an established growth corridor
• MF land demand: MF developers are actively seeking entitled land in Austin ETJ — limited supply of large, entitled MF tracts drives premium pricing
• Retail demand: National retailers and pad users follow density — FM 812 frontage is increasingly valuable as Goodnight Ranch, Easton Park, etc. mature
• MF land comps: Entitled MF land in South Austin ETJ: $20,000–30,000/unit — our $30K/unit mid-case is at the top of the range but justified by infrastructure and location

Market risk: Austin MF rental market is currently overbuilt (14.2% vacancy), but this affects operating MF — not MF land for future development. MF land buyers look 3–5 years ahead, and South Austin's growth trajectory supports continued demand.

CONDITIONAL GO — FM 812 is BBM's strongest deal on raw economics. The Lennar infrastructure subsidy is a genuine competitive advantage that turns a good land deal into a great one.

Why GO:

• 47% margin on cost (mid-case) — strongest in BBM portfolio
• Lennar shared infrastructure saves $1.0–1.5M and removes schedule risk
• FM 812 is an established growth corridor — not speculative
• Deal works at 300 units (conservative) — 360 is pure upside
• Retail pads ($4.8M) provide significant downside buffer
• Even in a 20% MF price decline, net profit is still $2.6M
• LP IRR of ~31% (mid-case, 24-month hold) is highly marketable
• Proven BBM partnership (Burns + McNeil + Biggar)

Why CONDITIONAL (not unconditional):

• Lennar infrastructure agreement not yet documented — verbal ≠ binding
• Unit count (300 vs 360) not yet determined — entitlement process has inherent risk
• Capital structure not finalized — LP terms, debt terms still TBD
• Retail pad timing risk — if pads sell late, hold period extends
• $6.5M is a significant commitment — environmental/title must be clean

Before committing:

• ✅ Document Lennar infrastructure agreement — connection terms, capacity, fees, timeline
• ✅ Engage entitlement consultant — confirm achievable density (300, 330, or 360)
• ✅ Complete environmental Phase I — standard for raw land of this size
• ✅ Finalize capital structure — decide: all-principal vs. LP fundraise
• ✅ Get title commitment and survey — confirm acreage, easements, restrictions