Land Acquisition & Due Diligence

 

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 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

·         Stormwater Management Facility Requirements

·         Best Management Practices

·         Entitlement, Approval and Permitting Process 
 

NEIGHBORING PROPERTY

·         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 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. Wastewater 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 wastewater 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!
 

Let’s take a look over the past four decades and review those projects that had a lasting impact on the industry and land.
 

1970 - 1980

The Walt Disney World Resort, commonly known as Walt Disney World and informally as Disney World, is the world's most-visited entertainment resort, located in Lake Buena Vista, Florida consisting of over 30,080 acres. To avoid a burst of land speculation, Disney used various dummy corporations to acquire 27,443 acres of land. The resort opened in 1971 perhaps changing the how large land holdings could be managed.
 

Also
 

James Rouse described Columbia as a planned new city which would avoid the leap-frog and spot development threatening the county. The new city would be complete with jobs, schools, shopping, medical services, and a range of housing choices   Close to 15,000 acres were desired to create a parcel large enough for an envisioned 100,000 person development. They set up a grid system to secretly buy land through dummy corporations. They were able to keep land acquisition at an average of $1,500 per acre from over 140 separate land owners. Columbia, MD was well underway in the early ‘70’s.
 

Also, Coral Springs, Florida on 20,000 acres started to take traction in the ‘70’s and ‘80’s.
 

1980 - 1990

Seaside is located in Northwest Florida and was developed in the 1980s as a modern Victorian town with narrow streets, picket fences and pastel-hued dwellings. It quickly revolutionized town planning across the United States.
 

The goal of Seaside was not only to create an old-fashioned beach town, but to create a social atmosphere that people enjoyed being in with every house in Seaside being colorful and different. On only 80 acres, this project brought national attention to the design principles of new urbanism.

 

Also, Weston, Fl was started in the mid’80’s as a planned community which was established as a city in 1996 with 65,000 residents.
 

1990 - 2000

In the early 1990s, the Disney Development Company (DDC) established the Celebration Company to spearhead its development within approximately 4,900 acres (20 km²) of land in the southern portion of the Reedy Creek Improvement District. Total investment for the project is estimated at US$2.5 billion.
 

2000 - 2010

Birkdale Village is a 52-acre vertical mixed use development including residential, retail and office mixed-use community located in Huntersville, North Carolina. The town center functions as the hub of a 800-acre new town that includes 4 communities of 2000 single-family homes and town houses. Included within the town center are 454,000 sq ft of retail and office space, and 340 units of multi-family housing. Birkdale opened in 2003. The idea of shared parking between non-competing uses worked.
 

2010 and Beyond – I wanted to illustrate some of the significant projects that set the stage for development patterns over the past 40 years. Disney World, Celebration, Weston, and Columbia were all large scale projects outside of urban areas. These massive projects were developed with a land basis of around $1,500 per acre or below for rural or agricultural zoned land. What is the price of similarly zoned land in your area?
 

Do you think you could buy 1,000 acres of property close to an urban center; start a new city from scratch and be profitable?
 

What do you think land managers will strive to buy in the future?
 

Will it continue to be land for a hop scotch development pattern or infill with vertical mixed uses?
 

The price of the land determines the success of the project.
 

Next Week: DESIGN