Ten Steps to Master in the Land Development Process
This multi-part Blog series will highlight how to mitigate risk and avoid issues that commonly plague land development projects. We will help you understand how to properly navigate the main phases of the land development process to help avoid cost overruns and delays (and a whole lot of stress and anxiety). This is a collection of observations, recommendations, and advice from the perspective of a civil engineer who has worked side-by-side with a diverse set of developers on hundreds of land development projects over the past 25 years.
If you are a real estate developer, broker, or land use attorney you will find the series to be of particular interest.
Topic 2: Doing Your Due Diligence – What rocks to overturn before committing to a Real Estate Development deal.
In my last blog, we talked about the value of an informal assessment when looking at a real estate development deal https://landcoreconsulting.com/informal-site-assessments/. If you have done that, and the deal passed the “sniff test”, you are likely going to put the land under contract and begin the clock ticking on a formal due diligence period. So where do you start? There is a long list of things that you could spend time and money researching during this period. The key is to identify the items that are most likely to turn up potential deal-killing issues and be of risk to a development deal. Every deal is different and the top priority due diligence items to attack will therefore be different for each deal. For this reason, it’s important to talk to your professionals to set forth the proper prioritization of tasks before diving in. With that said, let’s cover the typical recommended tasks that you should be undertaking as part of your due diligence.
Below is list and summary description of the primary due diligence tasks that, in general, should be performed in the initial phases of every real estate development deal.
- Obtaining Existing Documents/Plans/Reports: This is the #1 thing to do that can save you significant costs and time depending on how much information is available. In many cases the property that you are considering has been previously investigated or developed. Requesting any/all related documents from prior work can sometimes be a huge help. In addition to requesting such documents from the seller/broker, documents such as prior approvals, plans, etc. are a matter of public record and can be obtained through the municipality, County or other agency via an Open Public Records Act (OPRA) request.
- Zoning/Code Review: The devil is in the details on this one. Beware of looking only at the permitted uses and bulk standards (setbacks, coverage, height, etc.) and not doing a thorough page-by-page review of the relevant Zoning Code. This task must also include a review of the related development regulations depending on how the jurisdiction publishes their codes. For instance, in PA, a review of the Subdivision and Land Development Ordinance (SALDO) is essential since it contains the design requirements, stormwater requirements, etc. The results of a thorough review will ID not only the code constraints, but also any likely variances or design waivers that may be needed to achieve your development goals. An early understanding of any potential zoning or design standard relief can be critical to the overall feasibility of a deal.
- Title Report: A title report is easy to obtain and will provide some key information – aside from the financial encumbrances, etc. of the property, it will also tell you if there are other restrictions or items that can impact the development of the property. For instance, there may be a utility easement over a portion (or all) of a property that carries various restrictions such as a prohibition of grading or placement of structures. All of this is critical to know early in the process. A key aspect of the title report to review is Schedule B. This is a concise list of the various encumbrances to a parcel of land. The title report should also be reviewed in detail by your land use attorney and will also be reviewed and utilized by the surveyor when preparing the next critical due diligence task, a property survey.
- Survey: While having a survey of the property performed is a key step in any due diligence process, the scope of the survey that you order is very important. I commonly see developers order a basic ALTA/NPS survey (which is a survey performed to specific standards, including the review a title report) based on the direction or requirements of their lender. While such surveys will get you to the closing table, they are not sufficient for land development design and permitting. Survey scope differs depending on the needs of each project, but typically the survey needed for design and permitting will need to include topographic details, underground utility location, and off-site scope necessary to meet DOT and other agency requirements. Each municipality and agency often have their own survey standards, so it makes sense to seek the input of your civil engineer to ensure that the survey scope will meet the eventual needs of the project. This is another point in which a developer must weigh expenses vs time, based on probability of a deal moving forward. For instance, if the deal is very speculative, you may want to only perform a minimal survey up front (basic ALTA/NPS) and save the more detailed (and costly) survey scope until after you reach a certain milestone in the deal. The tradeoff to reducing up-front costs is that you will need to spend more time and money by sending survey crews out at a later date to obtain the supplemental information needed for design. Seasonal considerations also must be weighed against timing and level of detail to which you survey the property (i.e. snow-cover in northern climates can inhibit survey efforts).
- Environmental: Understanding possible environmental constraints of the property is another key undertaking. The scope of such investigations can vary widely depending on the property, but some commons actions include:
- Desktop review using state or local resources to assess a wide range of possible impacts. This step can be used to guide which more formal investigations to undertake.
- Phase 1 Environmental Site Assessment (ESA) – This is a standardized investigation performed by a licensed professional according to national protocol. A Phase 1 ESA is typically required by lenders and will provide a good overview, history and suggested further investigations, if warranted.
- Wetlands/Stream/Floodplain Investigations – The need for such investigations can typically be identified by a desktop review and confirmed by a site visit. The scope of such investigations is wide-ranging and dependent on many factors; however, they are important to understand early in the process as they can trigger additional permitting (time and $) and reduce development yield.
- Threatened & Endangered Species Investigation – the need for such investigations is typically identified by a desktop review (or, for example, a PNDI “hit” in Pennsylvania). If needed, these investigations can vary widely dependent on the site and species of interest. Seasonal considerations typically play a role in timing, so beware!
- Historical/Archeological Investigations – like the above, the need for these can often be identified via a desktop review or consultation with published documents via a state or local historical society or other organizations. Certain state and federal permits may require such assessments.
While the list above is just the “tip of the iceberg” it will cover most bases, at least initially. A proper desktop review, using the appropriate state and local web-based data and mapping is essential in guiding the necessary work. Depending on what investigations are needed, various specialty consultants may be necessary.
- Site Walk: If you are a developer purchasing a property or an engineer tasked with assessing and ultimately designing a development on a property, then you need to put on your boots and walk it. Google Earth and Street View are great for getting information on a site, but nothing replaces walking it. Through a site walk, you will gain a better sense of the property in some key ways – from topography to potential neighbor issues to signage visibility from a key vantage point. Boots on the ground are needed. When you do this, be sure to blanket the site with photos or video as you will no doubt revisit them later.
- Utility Research: You can’t properly assess the financial viability of a project without understanding utilities. How will the project be served? Is adequate capacity available? If so, what is the cost and process of obtaining the necessary hook-up? If not, what needs to happen (time, $ and process) to get service? These are basic questions that need answered during your due diligence process.
- Preliminary Traffic Assessment: Most every development project involves creating or altering vehicular access to the property and/or increasing or altering the traffic generation. Such alterations will drive additional permitting (typically DOT) which in many jurisdictions can be the long lead permit for the entire project. It can also lead to off-site improvements that go beyond your property frontage and may also require the cooperation of other property owners. All of this can obviously have substantial time and cost implications to your project. While a full traffic study will ultimately be needed in most cases, you generally don’t have the time (and budget) for such efforts during the due diligence phase. However, this is the time to engage with an experienced traffic engineer that is familiar with both the permitting entities and the roadway network in question. They can carry out a preliminary scope to gain a better understanding of what potential hurdles you may face and advise on realistic budgetary expenses, and timing, that you should expect in this regard.
- Preliminary Geotechnical Investigation: This step is especially important for larger development projects where earthwork, stormwater basin construction, and heavy sitework will be performed. Having a general understanding of soil and geologic conditions under the site can help identify potential cost and time issues. The scope of this can vary widely depending on the site and the envisioned project scope – from a desktop review of soils mapping/surveys to doing physical test pits and borings. A Preliminary Geotechnical Investigation can yield important information regarding sinkhole risk, special foundation needs, historical fill limitations, shallow rock and other challenges. Also look for recent construction projects nearby and seek out information regarding any challenges they may have encountered in this regard.
- Permitting Assessment and Timeline: If you are undertaking the above due diligence tasks, then you also want a comprehensive list and timeline laying out the relevant permits necessary for your project and how they contribute to the overall timeline necessary for successful completion. This is best done by utilizing software (such as Microsoft Project) to build a project Gantt chart that will include the various project phases (due diligence, design, permitting, preconstruction, construction, etc.) and the individual permits and steps within each of those phases with the proper timing dependencies that will assist you in establishing realistic project timing expectations. Having a realistic expectation of project timing is essential since this will impact everything from leasing, land contracts, financing, investor relations, carry costs, and many other things. In our experience, under-estimating the time necessary to get a project to (and through) construction is common and creates a multitude of problems down the road. That said, having such a comprehensive timeline at your disposal also gives you insight into what long-lead permits and processes will control your timeline… which is exactly where you should focus your efforts on acceleration.
- Political/PR Considerations: Will the town/jurisdiction support your project? That is an important thing to know before you go down the road too far. This is especially important if your project will require zoning variances/waivers from the municipality (identified in the zoning review, above). This can typically be assessed via some early communication and meetings with the appropriate officials and staff (it is also good to understand the election cycle in the local community). Use your local consultant/attorney as a guide here since they will typically know the right people to approach and what sensitivities may exist. Will there be neighborhood opposition? If so, what are the main items of concern and how can they be mitigated. Most projects will come with some level of objection, but you want to know up front what the likely issues are, what the permitting risk really is, and think about an appropriate PR strategy. We commonly see social media playing an increasingly significant role in community opposition to projects (unfortunately much of this is fueled by well-intended but misinformed opinions and allegations), but also the use of social media to get factual supportive information out to the community to head off potential issues.
The above items will mainly assess the constraints involved with developing the land and anticipate possible risks. As seasoned developers know, there are other financial and legal due diligence items to undertake as well. Taken together these steps should provide the level of information with which to better analyze your next deal. So what’s next? This work has given you great information, you have a better feel on timing and risk and likely have created a rough development pro forma. If the deal still makes sense at this phase, then you will want peel back some more layers in more detail to ensure that the upcoming design and permitting phases of your project are pointed in the right direction. For some insights on doing just that, stay tuned for our next blog; “Time to get Real – Preliminary Design and Assembling your Team”.
The above article is the second in our series of “10 Steps to Master in the Land Development Process”. Subscribe to the Blog to be notified of future articles in the series.
LANDCORE’s staff have been through thousands of projects – reach out to us to leverage our knowledge on your next deal.
To take advantage of LANDCORE’s free consultation click here https://landcoreconsulting.com/contact/ or reach out to me at email@example.com or call me at 215-836-2510 x1. I look forward to the conversation.