In a byline article for National Real Estate Investor, Principal Matthew Goelzer shares five questions he recommends asking for every development project.
Envision the following scenario. You’re in the process of selecting a new location for your retail business. Your broker has just shown you a site on a prime corner. Your instincts are telling you, “This is the property!”
Not only are the area’s demographics a great match with your target market, but the site is near several successful businesses with high foot traffic, and the property’s lease rate (or land price) is extremely attractive. You’re tempted to have your broker write a lease or purchase agreement.
Before you take this leap, it is critical you take a step back and answer some important questions. With a career focused on project feasibility, I have assisted owners in developing millions of square feet across four continents. Here are the five questions I recommend asking for every project:
1. Does the site have underlying property claims?
- Entities that predate statehood | Most owners and developers understand the need to investigate any rights and land ownerships granted to First Nations or Native Americans. Less commonly understood are rights granted to entities that predate statehood and may impact development rights. Overlying claims on a parcel may include those of agrarian districts, utilities or railroads. Ownership interests in water rights or mineral rights may also prohibit development.
- Easements and encumbrances | Just because you purchase real estate, it doesn’t always mean you have full control, or that others don’t have claims or rights to the property. There can also be limitations on the owner’s use or transfer of the property. The majority of these issues should be recorded to the property title, but this is not always the case. A thorough review of historic documents archived on county or city websites, field condition reports and overlying agency documents is essential.
- Reciprocal easement agreements1 and development agreements2 | If your business will be part of a development, it is in your best interest to familiarize yourself with any restrictions imposed on construction, maintenance and/or operations by
underlying agreements. These restrictions may be imposed directly between parties within the development, as well as between the developer and the authority having jurisdiction. Such constraints may impact design, construction or operations within the development and need to be part of your consideration.
2.) What soil conditions exist on the subject property?
Soil improvements are the biggest risk factor to your project budget. Although most soil contractors will have a strong understanding of local soils conditions, soil can vary dramatically from site to site and geotechnical field investigation is prudent. Specific risks include:
- Bearing capacity | Specifics of your building program will dictate what improvements are required to either the underlying soils or to your building foundations. Be aware of additional costs associated with…
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