Do Your Homework for Lands Sakes!

By Sean Cashen and Robert Pergolizzi

Have you ever driven by a property with a “For Sale” sign and wondered if you should invest? Well, doing a little bit of homework up front can find that “diamond in the rough.” Investing a little time and effort in “due diligence” or a feasibility study can prove to be invaluable in sizing up the opportunities and constraints on making a real estate investment.

Many real estate developers and investors have taken their share of lumps the past two  years, however, there are signs of an improved market in 2010, as well as a thaw in the lending freeze.  There has also been a marked increase in interest and activity the latter part of this year along with a noticeable uptick in optimism. This rejuvenated outlook combined with reduced land prices means only one thing--there are bargains to be had, IF you know how to spot them. But how do you know? We firmly believe in “doing your homework” and conducting a feasibility study on your potential acquisition will accomplish this and help you discern the difference between a “gem” and a lump of coal.  

A feasibility study typically evaluates regulatory items such as zoning, land use, concurrency, access, environmentally sensitive areas (wetlands), flood zone, availability of utilities and other issues that may affect developing a site. Surprisingly, much of this information is readily available through the Internet or can be easily obtained by talking with local government staff (zoning department, public works, etc.) While much of this information is available, deciphering all of this information and even more importantly, determining potential “deal-killers” and / or major roadblocks, can be accomplished by engaging a professional land development consultant.

Zoning regulations will tell you what you can generally do with a property as far as uses (bank, office, restaurant, etc.), intensity (how big), required parking, building height limits and building setback distances. Local access management regulations or the Florida Department of Transportation (FDOT), for state roads, determines your access--how many, the location and the type of access.  Location, convenience and ease of access is critical for retail establishments and restaurants, which often rely on passing-by traffic for customers.  If you are counting on the left-turn access into your site but are unaware of the eventual and permanent closing of this median due to impending roadway construction, this information is vital.  Transportation concurrency regulations with associated costs can pose significant problems which can render developing properties economically unfeasible.  Sometimes unforeseen impact fees can be the most menacing.  We once discovered park impact fees of over 2 million dollars on a site when our client had budgeted $200,000.  “Rut-roh” as Scooby-Doo would say.  All of these hidden items are typically uncovered during a thorough  “due diligence” review involving a feasibility study.

Finding information on wetlands and flood zone is extremely important.  We can generally determine, through a review of existing topography, field visit and review of maps and aerial photographs, the presence of wetland areas, flood zones and their general extent within the site.  An environmental scientist can help discern the quality, significance and actual limits of the wetland area if need be. There are many restrictions that can either prohibit or severely restrict development either within or in the vicinity of wetlands and within certain flood zones.

Depending on the history of the site, an Environmental Audit may also be necessary to determine if the site has contaminated soils.  It is extremely expensive to remediate (clean up) contaminated sites.  Existing soil, soil conditions and drainage patterns will help establish the size and type of a drainage retention/detention pond.  Availability and proximity of water and sanitary sewer facilities is important.  Occasionally water or sewer may be adjacent to the site but there may be restrictions to connecting to them.  You want to find out sooner than later that sewer is available and you don’t have to install pumps and extend a sewer line to obtain sewer service. On a previous project we discovered a potential buyer would have been required to extend a sewer line a mile to obtain service to the property; a cost-prohibitive item that could easily have been overlooked.

A concept plan is often valuable in visualizing how the property can be developed in accordance with local regulations by giving you picture of what the site layout and use may look like.  We have been using a three-dimensional model integrated with Google to give clients a street-level perspective of the “finished” concept plan when driving by the site.   This is a realistic visual experience that lends a completely different way of looking at a site.  Sometimes seeing is believing. 

Ultimately, it is in your best interest as a buyer to perform the necessary due diligence to determine the value of a property and whether it is a good investment. Feasibility reports and concept plans are often requested by lenders and prospective tenants and can be a great marketing tool chock-full of information.  Conducting your due-diligence can avoid a costly mistake and lead to high returns on investments.   Knowledge is power and information can be your most powerful tool when you do your homework. 

About the Authors
Sean P. Cashen, P.E., LEED AP, has almost 25 years of experience in the civil engineering and land development consulting industry in the Tampa Bay area.   He is a founding member and Principal at Gulf Coast Consulting, Inc. He is a Florida Registered Professional Engineer and also a LEED Accredited Professional.   He received his Bachelors degree in Civil Engineering from the University of Notre Dame in 1985.