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Archive for December 27th, 2012

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Land Acquisition & Due Diligence

Buying land for real estate development purposes will become more difficult, complex, and risky for residential and non-residential developers.

There have been many changes in buying and assessing land for development purposes.  Most of the recent changes are due to the great recession and lending practices. It hasn’t always been this way and over the past four decades, our approach to buying land remains about the same EXCEPT for governments influence:

“Buy land in the best location at below market prices and rezone for value”

The knocking on doors and asking the land owner to sell still may happen but most likely, the land owner will know more about the market price for their land than you! Unfortunately, they will think their property is always worth more than it is from a development point of view. In this case it is their estate that will sell the land!

The information found on the internet is remarkable and an internet property search before walking the property can save you a lot of time and effort.  Land acquisition is a local /regional enterprise with its own unique land evaluation approach because of land form and characteristics. But the approach to assess land for development potential remains the same. I am posting my due diligence checklist for your use. In previous blog posts, I have explained each task. Please add your tasks to this list or delete tasks to make this checklist specific to you. The due diligence period is part of the land acquisition process and “kicking the tires” take time, effort and financial risk.  

Due Diligence Checklist

GENERAL

·         Property Description and Ownership

·         Tax Map and Parcel Size

·         Master Plan Compliance

·         Future Road Alignments & Right-of-Way Dedications

·         Review of Phase I Environmental Study, if available

·         Walk the Site & Pictures

MAPS & PLANS

·         Property Boundary Survey

·         Tax Map

·         Zoning Map

·         Master Plans

·         Street Map and Community Amenities

·         Topographic Survey or Graphic Information Systems (GIS)

·         Aerial Photo

·         Soils

·         Water and Sewer Maps

·         Wetland Inventory Maps

·         Flood Plain Maps

·         Road Network Plan

ZONING & LAND USES

·         Zoning Designation

·         Permitted and Conditional Uses

·         Zoning Restrictions, Bulk Requirements, and Constraints

·         Density Bonus

·         Yield Analysis, Open Space and Buffer Requirements 

REGULATORY

·         Current Rezoning Applications

·         Development Impact on Services & Existing Infrastructure

·         Dedications, Easements and Encroachments

·         Road Access, Offsite Road Improvements & Onsite Road Circulation

·         Land Development Regulations

·         Storm water Management Facility Requirements

·         Best Management Practices

·         Entitlement, Approval and Permitting Process

NEIGHBORING PROPERTY (N.I.M.B.Y. ism issues?)

         Existing and Proposed Uses

·         Positive and Negative Surrounding Property Analysis

·         Neighborhood Reaction to Development Plans

·         Political Assessment 

SITE CHARACTERISTICS

·         Flood Plains

·         Environmental Constraints

·         Wetlands, Ponds and Jurisdictional Streams

·         SWIM Buffers, Natural Buffers

·         Property Soil Types and Characteristics impacting development potential

·         Water Table

·         Topography and Slope Analysis

·         Drainage Patterns, Conveyance and Site Characteristics

·         Water Line and Fire Hydrant Location, Water Pressure, and Availability

·         Sewer Line Location and Invert Elevations, Line and Plant Capacity

·         Other Utility Availability i.e. gas, electric, telephone, fiber optics

·         Frontage Road Classification, Condition and Sight Distance

·         Property Configuration Impacting Development

·         Connection to Adjacent Properties (Connectivity)

·         Soil Erosion and Sedimentation Control Issues

·         Watershed Protection Areas Requirements

·         Existing Vegetation and Specimen Trees

·         Existing Site Buildings, Condition and Demolition Requirements

GOVERNMENT STAFF COMMENTS

·         Planning & Zoning Department

·         Engineering Department

·         Public Works

·         Water and Sewer Departments

·         Building Department

·         Police Department

·         Fire Department 

 

DEVELOPMENT POTENTIAL ANALYSIS – HIGHEST & BEST USE

LAND PLAN CONCEPT

VALUE ANALYSIS

As we come out of the great recession, land remains the most valuable resource as our population continues to increase. Baby Boomers (79 million and about 10,000 retire per day! and Generation Y or “New Boomers” (71 million strong) will influence our real estate development decisions and our search for land. Where will people live in the future – rural, suburban, or urban settings? Each of these distinct geographic areas in your market presents a different set of circumstances.

Besides regulations and government restricting land, there are several key site characteristics which will be essential to your property investigation.  Every market will have its own unique issues to be investigated during due diligence phase but the following have national ramifications on real estate resurgence over the long term.

1. Wetlands and flood plains reduce buildable area and may extend permitting time and design complexities. New flood plain mapping has been ongoing through the great recession. New elevations and flood plain limits have been and are being reestablished. Local governments are establishing their own flood plain limits layered over top of the Federal Emergency Management Association (FEMA) maps. The definition and assessment of wetland areas continues to be problematic. Do you really think that it will become easier due to environmental protection or the definition will become less restrictive? Phase I reports will remain an element of our lending practices.

2. Sewer will be the issue of the decade. If you have a sewer line in front of your property doesn’t mean that you will be permitted to connect. Just because a sewer line can be extended to service your property doesn’t mean that you will receive a permit to do so. Why? It is not the truck line that is the problem, although it may be undersized. Waste water treatment plant capacity is and will be the problem for future development. Your due diligence approach has to be extensive and you have to ask the correct questions. There are plenty of “approved and unimproved” projects on the shelf in many markets. Most of these projects which would be serviced by public sewer and the owners have reserved plant capacity. Therefore a waste water treatment plant that is at 100% capacity may only be at 70% and 30% reserved for projects that have paid their fees. Or, the worst case scenario is that there is limited capacity available at the plant and there are NO plans for expansion. In many markets, “sewer moratorium” will again enter our land acquisition terminology.

3. Soil characteristics of a site have always have been a site analysis requirement. Soils are also a key determining factor on the earthwork costs of a project. As the “good land” has disappeared from the market for many reasons, the available properties have soil issues. The days of walking the property and digging your heal into the ground to assess it characteristics is no longer acceptable. Then we used soils maps which are excellent for planning purposes but not extremely accurate. Then we spent some money on test pits on selected areas. Then we spend money on soil borings on selected areas. Then we prepared a soils analysis investigation program combining everything at our disposal. And, in the end, we will still not know everything about the property as we should to consider the property for purchase. Site analysis work is undertaken to reduce risk.

4. Roads along the property frontage and offsite will be issues for your project much more in the future than ever before. It is conceivable that local governments will use the development community to repair, maintain and build roads just because a developer wants to build a project.

When was the last time your local jurisdiction built a road?

When was the last time you local jurisdiction repaved a road?

Does your local jurisdiction have the funds even to maintain the roads?

Ownership, quality, maintenance, turnover, pavement design, inspection, bonding, design criteria, capacity studies, traffic studies may change now or in the near futures. The pent-up demand for housing and non-residential projects will cause local, state, and federal government agencies to put more and more of the road network burden on the developer.  

Contracts – the purchase of property will not be any easier in the future simply because of the risks due to property characteristics, government regulations and property owner sophistication. Time will be the governing factor in bringing on projects online without the commitment of an outright purchase. We will have to approach land acquisition differently while managing cash flow during the regulatory and permitting process. Perhaps it is time for more land owners to sit in on the deal!

Finding and buying land for large scale projects that make a significant industry wide statement may be only available to a select few or those partnering with the land owner AND/OR government!  

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Principles of Good Practice we believe that adherence to the Community Development Society’s Principles of Good Practice are essential to sound community development.

  • Promote active and representative participation toward enabling all community members to meaningfully influence the decisions that affect their lives.
  • Engage community members in learning about and understanding community issues, and the economic, social, environmental, political, psychological, and other impacts associated with alternative courses of action.
  • Incorporate the diverse interests and cultures of the community in the community development process; and disengage from support of any effort that is likely to adversely affect the disadvantaged members of a community.
  • Work actively to enhance the leadership capacity of community members, leaders, and groups within the community.
  • Be open to using the full range of action strategies to work toward the long-term sustainability and well being of the community.

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New Development Complexities Demand New Approaches for Success Even though every land development project is unique and all have a variety of hurdles to overcome, the land development process is no longer well defined or rather simple, as in the past.  Today, projects have become increasingly complex due predominately to increasing regulations and a more engaged public.  That complexity results in more individuals being involved in almost every phase of a more specialized process, each of whom brings a wider range of personalities, technical knowledge, and opinions to the table.

Today , meeting zoning codes often represent just one hurdle to receiving permits.  The typical development project must fulfill requirements for stormwater management, erosion, and sediment control, and receive permission and/or permits from a municipal body that often requires the meeting of one or more environmental, smart growth, new urbanist, green building, and/or sustainability initiatives…not to mention public and community support.  To accomplish all of these additional challenges in the process, in an efficient and cost-effective manner, the process had to change.  For many, that change has been difficult.

Gaining Critical Buy-in

Most of the added complexity is a result of more people representing different stakeholders and bringing a variety of agendas to the table, whether or not the developer asks for them.   Dealing with these agendas after projects are designed and processed often delays entitlements and creates financing problems.  Since time delays get very expensive, one of the best proven strategies is bringing all of the stakeholders together for one or more meetings at the outset of the project.  In fact, it is best to get everyone in a room before the project has even been designed.   This has many benefits, particularly from a total cost standpoint to a developer.  By developing and achieving broad stakeholder buy-in of a comprehensive project vision before moving forward with project design, it is amazing how many problems can be avoided before they arise.

Selecting the Right Project Team

One of the early changes that benefits development efforts is how developers select project team members.  Selecting engineers, landscape architects, architects, etc. by the lowest bid is often a recipe for trouble.  In many instances, you get what you pay for and project costs end of higher in the end.

On numerous occasions I have had developers complain to me that they could not get their engineer to come to the site before the property was platted or during stakeout.  They said that some errors were made during the process, but they were not caught because the engineer did not make a site visit.  When the mistakes were eventually noticed, the costs to make corrections were substantial.

I confirmed with the developers that they had been responsible for hiring their engineer.  When I suggested that all they needed to do was to require a site visit by the engineer as part of the job, they claimed that none of the engineers they knew would do that.  I eventually found out that the developer had low-balled each of the engineering firms before selecting one – so the firms had eliminated the site visits as a portion of the contract.  Thus, the developer actually created the problem for himself and it cost him dearly as some cut and fill work, as well as road cuts, were made in the wrong place and had to be redone.

The benefits of selecting project team members that philosophically support your vision and that you will actually like to work with are tremendous.  Checking references and conducting interviews is a critically important part of the process.  You are likely about to spend millions of dollars on your project.  Finding the right members for your project team are perhaps the most important decision you will make.

The Starting Line-up

A good starting point of stakeholders for the initial gathering will likely include others beyond those you are paying to be there, such as:

–          The Developer

–          Construction Manager(s)

–          Project Engineer(s)

–          Landscape Architect(s)

–          General Contractor

–          Primary sub-contractors

–          Municipal official representative (city planning, council, commission)

–          Permitting authority

–          Neighborhood / community group(s)

–          Financial stakeholders(s)

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Difficult Sites to develop  – difficult / increased costs, yes,

                 and so rewarding…    (and not impossible)

As land development has gone on for so many years and presently its rate is quickening the result is that a lot of properties are no longer unavailable.  As an upshot there is an increasing necessity to be both creative and persistent about your ideas regarding your property’s future development.

 Some of the challenges to overcome:

Geographic challenges

  • Steep slopes  (Steep terrain – generally in excess of 12%)
  • Excessive run off of rain or snow melt
  • Poor soils (Incompatible with proposed development)
  • Wetlands – flood way limitations
  • Environmentally unhealthy (toxic soils) – Brownfield site
  • Visual obstructions
  • Macro / Micro climate issues

Administrative challenges

  • Zoning
  • Land use requirements
  • Legalities
  • Development limitations
  • Circulation limits
  • Site mobility (i.e. handicapped issues)

Adjacency challenges

  • Proximity
  • Nimby-ism
  • Undesired adjacent uses

 Other challenges

  • Natural or man-made obstacles (i.e. trees – vegetation, structures, etc)
  • Noise – excessive (i.e. road – highway, airport, rail road)
  • Many others…

 These and other challenges can be overcome, however additional costs may crop up  (i.e. time – money, patience, unexpected studies and / or special consultants).  The results in the end may be very satisfying with an enhancement of your proposed use and the happiness of the end product.

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Land Owner        –          Land Developer

  – Frustration or Fantastic venture? –

Have you ever thought to yourself, what do others know that I don’t about land development ?   You’ve heard it’s supposed to be really profitable…I understand that people these days are really into this investment craze…

Wish you had an uncle or brother-in-law in the land development business?  It often seems like such a ‘closed society’ and for persons owning a piece of land; this situation seems more of a frustration than a fantastic venture or investment.  Its especially devastating if you don’t know the inside facts or a vital piece of information.  With all the terms, abbreviations, and constant changes in land use regulations that vary from community to community, county to county and state to state…

So, where are you going to get this information? …  Research it yourself? (Really time consuming!) and what if you don’t get all the needed info?…Guessing or trial and error? (Disastrously costly!)… From other more experienced developers? (Although these persons may not be ‘mean guys’ as some label them, they’re not likely to wish you the ‘success’ or honestly assist you as you’re their competition!

While we may not be your uncle or brother-in-law, we know and work with these matters daily as we have for decades!  What’s more we really want to begin a strong and possibly long working connection with you!   In this effort what you don’t know can and very likely will hurt you!  You’ll need inside information including perhaps a design document or package of drawings that enable you to ‘develop’ according your wants / goals and the rules of the related governmental unit.

To keep up with the most current trends, opportunities, and rules we constantly meet with political leaders and perform gobs of research related to university teaching, speaking to groups and writing articles.  Serving on various boards and charettes, working with neighborhoods – ‘grassroots’ groups and faith based organizations (i.e. Habitat for Humanity).

In addition to this coaching and ‘training’ property owners to be developers, we have established ourselves as really resourceful and innovative pros.  The kind that even long time developers have come to for creative-innovative  ideas!  Like those in the township of Bruce (located in Southwest Michigan), the City of Detroit and developers in both of those communities.

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Community Development

Communities do not exist in a static environment. Rather, they exist in an environment in which change is the norm. In light of inevitable change, there really are only three choices available to us.

1) We can resist change, which is usually futile.

2) We can fall victim to change and let it dictate our destiny as it happens to us. This is often the case for older communities over the last three plus decades.

3) Finally,we can choose to direct and control change.  If we desire to control our own destinies, then taking steps to direct and control change is the only acceptable choice available.

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