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Dust off your investor playbook: the covered land play in a recovery cycle

Covered Land Play

What is a Covered Land Play?

With the relaxation of lock down restrictions, commercial real estate investors are trying to envisage how a post-virus downturn and recovery could play out across the different market sectors. Many are going through their playbooks searching for defensive real estate strategies and are revisiting a covered land play.

A covered land play is when an investor buys an income-producing property with the intent to redevelop or convert the existing property into a higher and better use – creating a higher value.


Use Local Market Knowledge for a Competitive Edge

You have probably seen a Cushman & Wakefield property listing with “potential covered land play” or “True Covered Land Play with In-Place NOI to Offset Carry Costs” in their advertising copy.

The “cover” is the investor looking at current in place income to minimize risk and cover debt service and the “land play” suggests the real motivation for the acquisition being the upside potential of the property created by redevelopment or conversion into a higher and better use.

While big developers can bank land and wait for a build cycle, the existing NOI on a property helps mitigate risk and makes it less risky for a smaller investor to generate an outsized return.

A covered land play differs from a “value-add” in which the current use of the property may be highest put can be enhanced by improving or rehabbing the property.
Insights gained from local knowledge can give the small investor an edge over national players.

Knowledge of up-and-coming neighborhoods, emerging submarkets, and gentrifying urban areas with improving demographics will help the local investor find situations to implement a covered land play strategy. Often the key is to get a property located in the path of growth.


Examples of Covered Land Plays

Infill Locations – often, covered land plays are infill locations. Look for properties that appear sub-par compare to their the surrounding new development.

Parking Lots – properties with a surface parking lot that has an income stream but also provides the opportunity to become a prime candidate for redevelopment in the next real estate growth cycle. This type of property may also offer a value-add opportunity in the interim. With advancements in technology, owners can leverage sophisticated third-party operators who can institute a dynamic pricing model to maximize revenue.

Car Washes – a self-service car wash is the classic example of a property that fits the model of a covered land play. Often, they are located in dense areas with strong traffic counts and good visibility. The income generally covers the carrying costs and the purchase price won’t be too high because the site is not reaching its full potential. The existing cash flow services to limit the downside risk and the long-term land play is the opportunity for a future higher density development of the site.

Low-rise, Vintage Apartments (“workforce” housing) – with close proximity to demand drivers (schools, employment hubs, hospitals, mass-transit), these tired buildings can be redeveloped as class A apartments.
Class B-C Retail in the path of growth -older retail properties in the path of growth can be acquired at a low cost, yet can produce enough income to cover the carrying costs. After acquisition, the real estate investor can entitle the property for a higher and better use (e.g. multifamily, office, or mixed-use).

Mobile Home Parks – If located in the path of growth, the municipality will typically allow for a higher-density use to alleviate the increased demand for housing, while simultaneously increasing tax revenue.
Self-storage Facilities – self-storage facilities are easy to operate and generate positive cash flow. If the property is well-located, it can be entitled to allow for multifamily or office.


Local market knowledge is the key to executing this strategy. Knowing where future development is likely to be will give a local real estate investor a competitive advantage.

In the new market, the covered land play may well prove to be an effective strategy to leverage to create value and generate above average returns.


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