Real Estate

Due Diligence and Site Acquisition Analysis

The purpose of the due diligence process is to identify select properties that are viable development sites, those that can benefit from the value-added process, and to recognize opportunities and risks relative to the property or to the geographic area. Prior to proceeding with site acquisition, it is necessary to define the project status and criteria which would include: land use, zoning, housing type, proposed amenities and access to major transportation corridors, employment and retail centers. The research process will be completed by the preparation of a comprehensive report which will include needed or existing entitlements, timing and governmental fees. This report will be important in the decision to purchase the property or not.

Special Assets and Distressed Properties

With today’s economy, many financial institutions are being forced to take back distressed or “Special Asset” properties. Quite often the necessary information, expertise or resources are not available to determine the proper disposition of the property. Financial institutions can help to limit their liability and risk by determining what the current condition of the property is prior to proceeding with the foreclosure process. Quite often, the properties are in the final stages of development and need minimal construction or just final documentation in order to complete the approval process. By completing or maintaining these projects, the value of the asset is maintained or improved. Whether prior to foreclosure or after, the financial institutions can use this information to determine the reasonableness of an appraisal or an offer to purchase. These properties should also be evaluated to determine if additional value can be realized by amending existing approvals or by re-entitling the project.

 

Most financial institutions when dealing with distressed projects will obtain a title report, an appraisal and occasionally an environmental Phase 1 report, but few will obtain an “entitlement and project status report”. This report will provide information that will result in a better understanding of the value of the property, usually with a resultant modification to the appraised value. These properties come in a wide variety, from undeveloped land to partially completed subdivisions to finished lots. Due to the phasing of projects, all three situations are often encountered within one property. The major areas of concern that affected the value of these properties were: loss of approvals due to failure to perform approval or permit requirements, unpaid impact fees or utility connection fees, expiration of permits, permit or environmental violations and unrecorded plats.

Project Management and Consultant Coordination

When assembling your land development consulting team the criteria should include: expertise, experience, knowledge of the local area, good relationships with local governments and the regulatory agencies, and political connections. In order to assemble the best team, it is often necessary to choose the individual, rather than the company and often to choose individuals from different companies. The consultants for a typical land development team include the project development manager, land use/environmental attorney, civil engineer, traffic engineer, geotechnical engineer, surveyor, land planner, wetlands consultant, environmental consultant and landscape architect. Selection of the correct team of consultants can result in savings of time, money and the ultimate success of the project.

Value Engineering and Site Plan Analysis

The planning and design of the project should incorporate the concept of value engineering, whereby each project component is analyzed to realize the best overall design for the minimum cost. All projects should strive to minimize the up-front cost and capitalize on the time value of money. This can be accomplished by analyzing concept site plans and engineering plans to improve on density, product type, lot sizes, re-design of the streets and block layout in order to reduce costs. Project and off-site utility or roadway improvements should be phased consistent with the needs of each internal phase, such that expenditures are minimized. When negotiating entitlements and project approvals, initial and upfront costs should always be kept in mind.

Entitlement and Permitting

Entitlement is usually defined as the rights and restrictions that are given through a zoning, site plan or platting approval by local government. These rights describe the land uses, number of units or square footage of buildings allowed by the approval. The restrictions may include the requirement for the construction of or payment for a required roadway or other improvements in order to meet concurrency requirements, the timing of construction of the units or improvements or the phasing of the project.

 

Permitting normally includes obtaining a permit for the installation of sewer and water systems, roadways and drainage systems. In addition state and federal regulations now require issuance of a Stormwater Pollution Prevention (SWPP) permit which regulates the discharge of pollutants, soils or sands from leaving the site.

Contract and Construction Administration

The structure and wording of construction contract documents can make the difference between an efficiently run project and one that runs over budget. Most contractors are proficient in locating contract exceptions or extra work that can generate the need for a change order to the contract. If the description of a work element is incorrectly applied or vague, the contractor has the ability to request a change order and often the developer or his engineer cannot find a valid reason to deny it.

 

In addition to the site development contractors, there is also a need for specialty contractors who install decorative walls, fencing, retaining walls, entry features, clubhouses, pools and playgrounds. Additional savings can usually occur by the developer contracting directly with these specialty contractors.

 

When you have multiple bidders, interviewing the three lowest or best-qualified contractors with respect to schedules and construction operations helps in selecting the appropriate contractor. The manager should negotiate the final contract terms on behalf of the client.

 

The manager should assist the Engineer of Record with the review of monthly payment and change order requests, monitor contractor’s progress and provide monthly progress reports to the owner. The manager should also assist the Engineer of Record with resolving conflicts between governmental inspectors, engineer and/or contractor. The manager should act as owner’s representative during construction of site improvements.

 

The manager should coordinate the timing of the installation of the amenities, entry feature, walls, fencing, landscape, irrigation and wetland mitigation planting, as well as the installation of electric, telephone, cable television and natural gas facilities.

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