The Profit in Floodplain Development Explained

12/19/25 – Despite substantial hurdles, floodplain development can be very profitable for patient developers with deep pockets, even if only a small percentage of their land is developed.

For instance, Scarborough Lane Development/San Jacinto Preserve LP has purchased more than 5,000 acres of land in floodplains and floodways near the confluence of four waterways. They include the San Jacinto West Fork, Spring Creek, Cypress Creek, and Turkey Creek.

Buyer Says It Paid $140 Million for Property Appraised at Less Than $1 Million

Scarborough claims it paid close to $140 million for the property – 8X higher than the Montgomery County Appraisal District (MCAD) places the market value of the land and 175X higher than the appraised value. See below.

Even more stunning, Ryko, the company that sold the property to Scarborough/SJP, produced a preliminary engineering study that suggested only 38% of the land was developable because it has such high flood risk.

So, in what galaxy does this make economic sense?

Actually, it makes perfect sense – if you understand how the game is played.

Spread Makes Bread

Said another way, buy low; sell high.

The exceedingly low appraised value of floodplain land helps developers acquire and hold the land, sometimes for decades – at a very low tax cost while they work out regulatory issues. And when they do, the step change in value is so great, that if only 20% of the land is developable, they likely still make money.

This is according to ChatGPT, which costed out details of several development scenarios for me. One was even profitable with only 10% developable land.

A wide spread between acquisition costs and potential land sales after all permits and mitigation costs are accounted for is one of the main reasons why developers target floodplain land.

The dynamic is well understood in land economics and is particularly visible in fast-growing regions like Montgomery County.

Floodplain land often sells at a steep discount relative to nearby uplands because of:

• Regulatory limits (floodway vs. floodplain)
• Engineering costs (fill, detention, bridges)
• Uncertainty (permitting, litigation, political risk)
• Time value (increased holding costs because of longer periods before land becomes salable).

With steep, discounted prices in mind, even modest success—e.g., making 20–30% of a tract buildable — can make the entire investment profitable. Anything above that is gravy.

Why Floodplain Land Produces Unusually Large Spreads

Floodplain land tends to be priced as “mostly unusable.” Once permits are secured, the buildable portion prices like normal land. But the remainder can still be monetized as detention, mitigation, or open space.

Better yet for the developer, some of the land designated as green space may even be developed years later as the pain of flooding dims and political winds shift.

This can create huge “step” changes in land value.

Factors that Amplify Spread

In Texas, several factors amplify this spread. Consider, for instance:

Timber Exemptions that Lower Carrying Costs:

Developers pay only a few dollars in taxes per acre per year. On the five parcels above, taxes average $148 per acre per year. That makes patience very cheap. A well capitalized developer can afford to wait years while working out permitting issues.

Timber exemptions also mask speculative intent. On paper, the land looks like a passive forestry holding, not a development play.

Reliance on Post-Development Mitigation at Public Expense:

Some developers shift part of their mitigation costs onto the public. For example, some developers in Montgomery County have avoided building detention basins by using questionable flood routing studies. Even the former Montgomery County engineer criticized the practice. As flood peaks build over time, downstream residents clamor for mitigation. But it comes at public expense. So the developer has effectively externalized some of its costs.

Permissive Local Drainage Rules and Lax Enforcement:

This is especially true in counties that surround fast growing metropolitan areas. Some counties around Houston still use drainage criteria from the 1980s to help attract development.

Sometimes gaps in regulations cause flooding as Elm Grove discovered twice in 2019. Many floodplain developers tend to exploit such gaps in regulations and then claim they are complying with all applicable regulations.

Montgomery County recently upgraded its drainage criteria manual and adopted Atlas 14 rainfall probability standards. But willful blindness among regulators can still create a permissive environment to the detriment of people living downstream.

Risk/Reward Ratio Attracts Only Certain Types of Developers

Floodplain land tends to attract well-capitalized, patient developers with a 10–20 year horizon. For those with deep pockets and powerful partners, economics may work even if 90% of the land never becomes buildable.

This is not accidental; it is a rational, well-understood land-banking strategy.

However, the spread only turns into profit if risk converts to permission. It collapses if floodway limits are strictly enforced, mitigation costs surge, public opposition blocks approvals, or political sentiment hardens after major floods.

In such cases, floodplain land can become a capital trap, not a bargain. But still…

The large spread between low purchase cost and high potential value is a major magnet for developers.

And that’s how the Houston region got 65,000 homes built in floodplains since Hurricane Harvey, as investigative reporter Yilun Cheng discovered for the Houston Chronicle.

Courageous reporting, such as hers, makes flood risk highly visible and politically salient. And that makes the spread harder to monetize. Witness recent resolutions by Harris County Precinct 3 and the City of Houston. It will be interesting to see Scarborough’s next moves.

Next Up

I am working on a series of posts about floodplain development. Next, I’ll examine the seductive promise of green space. Floodplain developers often promote abundant, recreational green space to early buyers in a development.

But just as often, they try to monetize that green space during the latter stages of a development – green space they promised early buyers would remain green forever. Check out the warning-sign checklists in my next post before you buy property to see if your green space could someday vanish.

Posted by Bob Rehak on 12/19/2025

3034 Days since Hurricane Harvey

The thoughts expressed in this post represent opinions on matters of public concern and safety. They are protected by the First Amendment of the US Constitution and the Anti-SLAPP Statute of the Great State of Texas.