Commercial real estate developers and investors recognize that raw, undeveloped land represents one of the most significant opportunities in real estate. However, transforming vacant land into income-producing commercial properties requires substantial capital, specialized expertise, and access to flexible financing solutions. Land development and subdivision financing bridges the gap between purchasing raw land and creating valuable commercial real estate assets.
One West Hard Money provides fast, flexible land development and subdivision financing for commercial projects, with loans from $5 million to $100 million and funding in as little as 8 days.
What Is Land Development & Subdivision Financing?
Land development financing provides capital to purchase vacant land and fund the infrastructure, improvements, and entitlements necessary to transform raw parcels into developable commercial properties. Subdivision financing specifically funds the process of dividing larger land parcels into multiple smaller lots that can be sold individually or developed separately for commercial use.
Unlike traditional commercial real estate loans that rely on existing income from stabilized properties, land development loans are based on the value of the underlying land, the development plan’s feasibility, and the borrower’s experience executing similar projects. These loans provide the capital needed to:
- Purchase undeveloped land with commercial zoning
- Fund entitlement and permitting processes
- Install infrastructure including roads, utilities, drainage, and landscaping
- Complete site preparation and grading
- Subdivide larger parcels into individual lots
- Finance predevelopment activities before construction begins
Land development and subdivision represent the critical first phase of commercial real estate creation, transforming raw land into shovel-ready sites for office buildings, retail centers, industrial facilities, or multi-family properties.
Types of Land Development Projects
One West provides land development financing for commercial projects across various property types and development strategies:
Commercial Subdivision Projects
Commercial subdivision involves purchasing large undeveloped parcels and dividing them into multiple smaller lots suitable for individual commercial development. Developers create subdivided lots for retail centers, office parks, industrial facilities, or mixed-use projects. This strategy allows investors to:
- Purchase land at bulk pricing and sell subdivided lots at retail pricing
- Reduce risk by selling lots to multiple end users rather than developing the entire parcel
- Generate returns through lot sales while retaining prime locations for future development
- Create commercial parks with complementary businesses and shared infrastructure
Subdivision projects require significant expertise in land planning, entitlements, infrastructure design, and market analysis to ensure subdivided lots meet market demand and maximize value.
Industrial Park Development
Industrial parks transform vacant land into clusters of industrial properties designed for warehousing, distribution, manufacturing, or flex space. These developments typically feature:
- Large lot sizes suitable for industrial buildings
- Heavy-duty infrastructure including reinforced roads and high-capacity utilities
- Strategic locations near highways, rail access, or ports
- Flexible zoning accommodating various industrial uses
The explosive growth of e-commerce and logistics has created strong demand for industrial properties, making industrial park development particularly attractive for investors and developers targeting this sector.
Office Park Development
Office park developments create campus-style environments on vacant land designed to attract multiple office tenants or owner-occupants. These projects involve:
- Master planning for multiple office buildings
- Creating attractive environments with landscaping and amenities
- Designing flexible spaces accommodating various business types
- Installing infrastructure supporting modern office requirements
Successful office park developments require strong location fundamentals, quality design, and amenities that attract businesses and employees.
Retail Center Development
Retail-focused land development transforms vacant parcels into shopping centers, strip malls, or mixed-use retail properties. These projects require:
- Prime locations with strong demographics and traffic patterns
- Careful tenant mix planning to create synergy and attract shoppers
- Adequate parking and accessibility
- Infrastructure supporting retail operations
While retail has faced challenges from e-commerce, well-located and properly designed retail developments continue to perform strongly, particularly in underserved markets.
Mixed-Use Development
Mixed-use developments combine multiple property types on a single site, creating live-work-play environments. These projects might include:
- Ground-floor retail with office or residential above
- Combined residential and commercial spaces
- Entertainment, dining, and shopping in walkable environments
Mixed-use developments require sophisticated planning and financing but can create significant value by maximizing land use and creating destination environments.
Land Banking and Predevelopment
Some investors purchase and improve land for future development without immediate construction plans. These land banking strategies involve:
- Acquiring well-located parcels before prices increase
- Completing entitlements and permitting to increase value
- Installing basic infrastructure to create shovel-ready sites
- Holding land until market conditions optimize development or sale
Land banking allows investors to secure strategic locations and capture appreciation while reducing holding costs through incremental improvements.
Why Developers Pursue Land Development & Subdivision Financing
Create Value Through Transformation
Raw, vacant land typically trades at the lowest price per square foot in real estate. By adding infrastructure, entitlements, and subdividing parcels, developers create substantial value. A vacant 50-acre parcel might cost $5 million, but after subdivision and infrastructure installation, individual lots might sell for $15-20 million collectively, generating significant returns.
Capture Market Growth
Developers purchasing and improving land in growth markets position themselves to capture appreciation as communities expand. Being early in emerging markets allows investors to secure prime locations before competition intensifies and prices rise.
Control Development Pipeline
Owning and controlling developable land provides developers with a pipeline for future projects. Rather than competing for limited development sites, developers with entitled land can time projects to match market conditions and available capital.
Flexible Exit Strategies
Land development projects offer multiple exit strategies:
- Sell individual lots to other developers or end users
- Develop properties on improved lots for long-term ownership
- Joint venture with builders or operators on specific parcels
- Hold improved land for appreciation before development
This flexibility reduces risk compared to projects requiring full build-out before generating returns.
Leverage Expertise and Relationships
Experienced developers can create value through specialized knowledge of entitlements, infrastructure, market demand, and local regulations. Strong relationships with planning departments, utilities, and contractors provide competitive advantages in executing development projects efficiently.
Tax Advantages
Land development can offer tax benefits including:
- Depreciation on infrastructure improvements
- Interest deductibility on development financing
- 1031 exchange strategies for transitioning between properties
- Opportunity zone benefits in designated areas
Consult with tax professionals to optimize tax strategies for specific projects.
Land Development Loan Terms from One West
One West structures land development and subdivision financing to provide maximum flexibility while managing risk through disciplined underwriting:
Loan Size: $5M – $100M – One West provides land development loans from $5 million to $100 million, accommodating projects ranging from small commercial subdivisions to major master-planned developments. This loan size range ensures developers working on various project scales can access appropriate financing.
Loan Terms: 12 – 46 Months – Flexible loan terms from 12 months to 46 months accommodate different development timelines. Shorter terms work for projects with rapid entitlement and lot sales, while longer terms provide stability for complex developments requiring extended approval processes. Developers choose terms matching their specific project timeline and exit strategy.
Fixed Interest Rate: 10% – One West offers a competitive 10% fixed interest rate on land development loans, providing predictable debt service throughout the loan term. This fixed rate protects against interest rate fluctuations during the development process and simplifies financial planning.
Interest-Only Payments – Land development loans feature interest-only payment structures, preserving capital during the development phase when projects generate no income. Interest-only payments reduce monthly debt service, allowing developers to focus resources on infrastructure, entitlements, and improvements rather than principal reduction.
Origination Fee: 1.5% – 3% – Origination fees range from 1.5% to 3% depending on loan size, project complexity, and developer experience. Larger loans and experienced developers typically receive lower percentage fees.
Loan-to-Value Up to 80% – One West provides up to 80% LTV on land development financing, calculated based on the land’s current value or purchase price. For a $10 million land acquisition, One West could provide up to $8 million in financing. Some structures include additional funding for infrastructure costs beyond initial acquisition.
DSCR: N/A During Development, 1.25x Post-Development – Since vacant land generates no income during development, debt service coverage ratios don’t apply during the development phase. However, if projects transition to stabilized commercial properties, a minimum 1.25x DSCR is required, meaning net operating income must exceed annual debt service by at least 25%.
Non-Recourse Structure – One West’s non-recourse land development loans limit personal liability, providing important protection for developers. This structure allows developers to pursue projects without risking personal assets beyond their equity in the project, subject to standard carveouts for fraud, misrepresentation, and environmental issues.
No Prepayment Penalties – Market conditions change and opportunities arise unexpectedly. One West charges no prepayment penalties, allowing developers to pay off loans early without penalty if they sell lots, secure permanent financing, refinance into construction loans, or complete projects ahead of schedule.
Rapid Funding: 8 Days – Speed matters in competitive land markets. Once loan applications receive approval, One West funds land development financing in as little as 8 days, allowing developers to close quickly on land acquisitions, respond to motivated sellers, and move projects forward without delay.
The Land Development Process
Understanding the land development process helps developers plan timelines, budget costs, and structure financing appropriately:
Phase 1: Site Selection and Acquisition
Successful land development begins with identifying well-located parcels with development potential. Critical factors include:
- Location and Market Demand – Sites in growth markets with strong demographics, employment, and limited commercial real estate supply
- Zoning and Land Use – Parcels with appropriate commercial zoning or reasonable likelihood of zoning changes
- Access and Visibility – Frontage on major roads, highways, or thoroughfares with strong traffic counts
- Utilities and Infrastructure – Proximity to water, sewer, electrical, and telecommunications infrastructure
- Topography and Environmental – Sites with favorable grading, minimal wetlands, and no significant environmental constraints
- Entitlement Risk – Assessment of permitting complexity and timeline
Experienced developers perform extensive due diligence before acquisition, including Phase I environmental assessments, geotechnical studies, title reviews, and preliminary discussions with planning departments.
Phase 2: Entitlements and Approvals
Entitlements represent the legal right to develop land for specific uses. This process involves:
- Zoning Approvals – Confirming or obtaining appropriate commercial zoning classifications
- Site Plan Approval – Securing approval for specific development layouts and designs
- Environmental Permits – Addressing wetlands, stormwater, endangered species, and other environmental regulations
- Utility Approvals – Coordinating with utility providers to confirm capacity and connection requirements
- Traffic Studies – Demonstrating adequate traffic capacity and designing required improvements
The entitlement process can take 6-24 months depending on project complexity and local regulations. Developers work with land use attorneys, engineers, and consultants to navigate approval processes efficiently.
Phase 3: Infrastructure and Site Development
Once entitlements are secured, developers install infrastructure necessary to create developable lots:
- Rough Grading – Clearing, grading, and preparing sites for development
- Roads and Paving – Installing access roads, internal circulation, and parking areas
- Utilities – Extending water, sewer, electrical, gas, and telecommunications infrastructure throughout the site
- Drainage and Stormwater – Installing drainage systems, retention ponds, and stormwater management facilities
- Landscaping and Hardscaping – Creating attractive environments with landscaping, sidewalks, and amenities
Infrastructure costs typically represent the largest component of land development budgets, often ranging from 20-40% of total project costs.
Phase 4: Subdivision and Lot Creation
For subdivision projects, developers formally divide parcels into individual lots through:
- Platting – Creating legal lot descriptions and boundaries
- Recording – Filing subdivision plats with local authorities
- Individual Lot Utilities – Stubbing utilities to each lot
- Lot Preparation – Final grading and preparation of individual lots for sale or development
Subdivision creates individual parcels that can be sold to different buyers or developed independently.
Phase 5: Marketing and Sales
Developers market improved lots to:
- Owner-Occupant Businesses – Companies purchasing lots for their own facilities
- Developers and Builders – Entities purchasing lots for commercial construction
- Investors – Individuals or entities purchasing lots for investment or future development
- National Tenants – Chain retailers, restaurants, or businesses seeking locations
Successful lot sales depend on competitive pricing, strong marketing, flexible terms, and demonstrated demand for commercial space in the market.
Phase 6: Exit or Development
Developers typically pursue one of several exit strategies:
- Sell All Lots – Complete sale of all subdivided lots, generating maximum liquidity
- Sell Most, Retain Prime Locations – Monetize most lots while retaining strategic parcels for future development
- Develop Key Properties – Build commercial properties on prime lots for long-term ownership
- Joint Venture – Partner with builders or operators on specific lots while retaining land positions
Many developers combine strategies, selling lots to generate returns while developing or holding prime locations to maximize total returns.
Qualifying for Land Development Financing
Lenders evaluate several factors when underwriting land development and subdivision loans:
Developer Experience
Lenders prioritize developers with proven track records executing similar projects. Relevant experience includes:
- Previous land development or subdivision projects
- Commercial real estate development background
- Construction and project management expertise
- Local market knowledge and relationships
First-time developers may face more conservative terms or require more equity, while experienced developers receive more favorable financing.
Project Feasibility
Strong land development projects feature:
- Market Demand – Demonstrated need for commercial space in the area
- Location Quality – Prime locations with strong demographics and access
- Competitive Positioning – Lot sizes, pricing, and features aligned with market demand
- Realistic Timeline – Achievable development schedules with appropriate contingencies
- Comprehensive Budget – Detailed cost estimates covering all development phases
Lenders review feasibility studies, market analyses, and financial projections to assess project viability.
Financial Strength
Developers must demonstrate adequate financial capacity through:
- Sufficient equity to cover their portion of costs (typically 20-40% of total project costs)
- Adequate liquidity to cover carrying costs during development
- Strong credit history and financial statements
- Experience managing project budgets and construction draws
Financial strength provides lenders confidence that developers can complete projects successfully.
Entitlement Status
Projects with entitlements already secured or clear paths to approval receive more favorable terms than projects with uncertain entitlement timelines. Lenders assess:
- Current zoning and land use designations
- Status of required permits and approvals
- Complexity of remaining entitlement processes
- Relationships with planning departments and local officials
Entitled land reduces risk and shortens project timelines, improving financing terms.
Environmental and Physical Conditions
Sites with favorable physical characteristics receive better financing terms:
- Clean Phase I environmental assessments
- Favorable topography requiring minimal grading
- Adequate drainage and no wetlands or protected habitats
- Suitable soils for construction
- No hazardous materials or contamination
Environmental issues or challenging physical conditions increase development costs and timeline risk, affecting financing availability and terms.
Advantages of One West Land Development Financing
Flexible Loan Structures
One West customizes land development financing to match specific project needs. Unlike standardized bank products, One West structures loans based on individual project characteristics, developer experience, and market conditions.
Fast Approval and Funding
The 8-day funding timeline allows developers to close quickly on land acquisitions and respond to motivated sellers. Traditional lenders typically require 60-120 days or longer for land development loans, causing developers to miss opportunities.
Non-Recourse Protection
Limited personal liability protects developers’ personal assets while pursuing land development projects. This structure provides important risk management, particularly for developers working on multiple projects simultaneously.
Interest-Only Payments
Interest-only payment structures preserve capital during development when projects generate no income. This flexibility improves project cash flow and allows developers to focus resources on development activities rather than debt service.
No Prepayment Penalties
Complete flexibility to pay off loans early without penalty allows developers to refinance, sell lots, or restructure debt as circumstances warrant without additional costs. This feature provides important optionality as projects progress.
Experienced Commercial Real Estate Team
One West’s team understands land development and commercial real estate, providing valuable insights beyond basic lending. The team can help developers identify risks, refine strategies, and structure optimal financing solutions.
High Loan-to-Value
At 80% LTV, One West provides substantial leverage for land acquisitions, preserving developer equity for infrastructure costs, carrying expenses, and future projects. Higher leverage amplifies returns when projects succeed.
Land Development Financing Example
Scenario: Commercial Subdivision Development
An experienced developer identifies a 30-acre vacant parcel in a growing suburban market suitable for commercial subdivision. The site has appropriate commercial zoning, utilities nearby, and strong market demand for commercial lots.
Project Details:
- Land Purchase Price: $6,000,000 ($200,000/acre)
- Infrastructure Costs: $4,000,000
- Soft Costs (engineering, permits, marketing): $1,000,000
- Total Project Cost: $11,000,000
- Planned Development: 15 commercial lots averaging 2 acres each
- Projected Lot Sales: $1,200,000 per lot ($18,000,000 total)
One West Land Development Loan:
- Loan Amount (80% of land): $4,800,000
- Developer Equity: $1,200,000 (land) + $5,000,000 (infrastructure/costs) = $6,200,000
- Interest Rate: 10% fixed (interest-only)
- Monthly Interest Payment: $40,000
- Loan Term: 36 months
- Origination Fee: 2% ($96,000)
Project Timeline and Economics:
- Months 1-6: Entitlements and engineering
- Months 7-18: Infrastructure installation
- Months 19-36: Lot marketing and sales
- Projected lot sales: 12 lots @ $1,200,000 each = $14,400,000
Financial Outcome:
- Gross Lot Sales: $14,400,000
- Less: Loan Payoff ($4,800,000)
- Less: Developer Equity ($6,200,000)
- Less: Interest Paid (36 months @ $40,000 = $1,440,000)
- Less: Sales Costs ($720,000)
- Net Profit: $1,240,000
The developer retains 3 prime lots valued at $3,600,000 for future development while generating strong returns on invested equity.
Common Challenges in Land Development
Understanding common challenges helps developers plan appropriately and structure financing to accommodate risks:
Entitlement Delays
Permitting and approval processes often take longer than anticipated. Developers should build timeline contingencies into project plans and financing structures. Working with experienced land use attorneys and maintaining strong relationships with planning departments helps minimize delays.
Infrastructure Cost Overruns
Underground utilities, challenging soils, or unexpected site conditions can increase infrastructure costs beyond initial estimates. Comprehensive geotechnical studies, detailed engineering, and adequate contingencies help manage cost risks.
Market Timing
Land development projects typically require 2-4 years from acquisition to lot sales. Market conditions can change during this period, affecting demand and pricing. Developers should carefully analyze market fundamentals and consider multiple exit strategies.
Utility Capacity Constraints
Some markets face limited utility capacity, requiring developers to fund off-site improvements or wait for utility expansions. Early coordination with utility providers prevents costly surprises.
Environmental Issues
Wetlands, endangered species, contamination, or other environmental issues can derail projects or significantly increase costs. Phase I environmental assessments, wetland delineations, and environmental due diligence are essential before land acquisition.
Frequently Asked Questions
What types of land qualify for development financing?
One West finances vacant land with commercial zoning or reasonable prospects for commercial zoning. Suitable properties include undeveloped parcels in growth markets with access to utilities, roads, and strong market fundamentals. Agricultural land, rezoning situations, and greenfield sites can all qualify depending on specific circumstances.
How much equity do I need for land development financing?
At 80% LTV, developers typically need 20% equity in the land acquisition. However, infrastructure and development costs are typically funded with developer equity, so total equity requirements often range from 30-50% of total project costs. Experienced developers with strong projects may receive more favorable terms.
What if entitlements take longer than expected?
One West structures loan terms with appropriate buffers for entitlement timelines. If delays occur, developers can typically extend loans or restructure terms. Early communication with lenders about timeline changes helps maintain positive relationships and flexibility.
Can I use the loan to fund infrastructure costs?
One West’s primary focus is land acquisition financing at 80% LTV. Infrastructure costs are typically funded with developer equity, though some structures include additional funding for infrastructure. Discuss your specific project needs with One West to explore available options.
What happens if I can’t sell lots as quickly as planned?
Flexible loan terms and no prepayment penalties provide options if lot sales progress slower than anticipated. Developers can extend loans, refinance, adjust pricing, or pursue alternative exits including development or joint ventures on unsold lots.
Do I need experience developing land?
While experience significantly improves financing terms and approval likelihood, first-time developers with strong projects, capable teams, and adequate financial resources can sometimes qualify. Partnering with experienced developers, general contractors, or consultants can help less-experienced developers secure financing.
What markets does One West serve?
One West primarily serves the St. Louis, Missouri region and surrounding markets, though some projects in other strong markets may be considered. Contact One West to discuss your specific location and project.
Getting Started with Land Development Financing
Ready to transform vacant land into valuable commercial real estate? Here’s how to begin:
- Identify Potential Sites – Research markets, identify vacant parcels with development potential, and perform preliminary feasibility analysis
- Contact One West at (314) 970-4061 or loans@onewesthardmoney.com to discuss your project and financing needs
- Submit Project Information – Share details about the land, your development plan, budget, timeline, and experience
- Due Diligence – Work with One West to complete property evaluations, market analysis, and financial underwriting
- Receive Loan Commitment – Obtain detailed terms including loan amount, interest rate, term, and conditions
- Close Quickly – Complete closing and fund your land acquisition in as little as 8 days
- Execute Development Plan – Transform your vision into valuable commercial real estate
Transform Land into Opportunity
Land development and subdivision represent the foundation of commercial real estate creation. By transforming raw, vacant land into improved, developable sites, experienced developers create substantial value while meeting market demand for commercial space.
One West Hard Money provides land development and subdivision financing from $5 million to $100 million with up to 80% LTV, 10% fixed interest-only rates, flexible 12-46 month terms, non-recourse structure, and funding in just 8 days. Our program enables developers to acquire strategic land positions and execute development projects with the speed and flexibility necessary for success.
Whether you’re subdividing land for commercial lots, developing industrial parks, creating office or retail centers, or pursuing mixed-use projects, One West’s land development financing provides the capital you need to transform vacant land into valuable commercial real estate.
Contact One West today to discuss your land development goals and discover how quickly you can access financing to turn raw land into commercial opportunities.
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