Due Diligence Reducing Risk to Increase Your Bottom Line
Prime real estate for development has been steadily shrinking in the southwestern Pennsylvania region. Early industrial, commercial, and residential developers generally chose the sites which were the least challenging. The “easy stuff” is now mostly developed, and what remains undeveloped is usually still there for a reason. Because of this, the number of redevelopment projects have increased in the region.
For developers looking to redevelop existing sites or looking at greenfield developments, a certain amount of due diligence is prudent before any Purchase Agreement is signed. Individuals selling or representing property are not always forthcoming on why their “prime real estate” has been on the market for an extended period of time.
Performing a certain amount of due diligence in the early stages of the site selection process can flush out the key issues which must be addressed. Understanding the issues prior to a transaction can help developers truly understand the costs associated with site development which may determine the will to proceed to a sales agreement.
To that end we recommend that developers spend time learning as much as possible about the site they are looking to acquire. Before they engage in an acquisition, we suggest developers explore answers to the questions pertaining below to common site issues prevalent in our region. Exploring answers to questions regarding these issues may help to refine the scope of the proposed project to limit the chance of incurring unforeseen costs.
The most common issues which make development of land difficult or more costly in the region are:
Are there ample utilities and sewers available to service the project? If not, what extensions would be required? Most projects need to have adequately-sized sanitary sewers, waterlines, electric lines, gas lines, and communication cables readily available. Without these utilities, costly extensions for alternative sources would be required to make the property developable and attractive to future buyers or leaseholders.
How much earthmoving is required to accommodate the anticipated use for the site? In southwestern Pennsylvania, there are very few sites that are considered pad-ready. A certain percentage of most available land is lost as a result of required grading operations. Besides the loss of usable land, significant costs of moving earth can render many types of development unaffordable.
Underlying Coal or Mine Voids
Is the site above a coal seam? If so, how deep is the seam and has it been mined previously? If not, techniques such as grouting or incorporating caisson design can be costly.
Site Access Issues
Is the roadway system at and around the site adequate for the proposed use? Is there adequate sight distance from a proposed driveway? Will off-site traffic improvements be required as part of any municipal or Department of Transportation approvals? The location of a parcel is key to the success of most developments; unfortunately, if the site cannot be accessed or gotten out of safely, the chances of success for the development is diminished.
Local Municipal Zoning Restrictions
Is the proposed use permitted in the parcel’s zoning district? Local ordinances limit development of any land to specific uses. Additionally, some uses are only permitted with conditions set forth in ordinances. Adhering to the conditions can add costs, or limit a developer’s ability to use the land.
Environmental Preservation Requirements
Does the site have any existing wetlands or designated streams? If so, these need to be avoided or removed and mitigated. If the former is chosen, a certain portion of the parcel is lost to development. If the latter is chosen, extensive permitting is likely required. Significant time and monies would need to be invested in this process, with no guaranteed approval.
Man-made Environmental Issues
Was the site previously used in a manner which left toxic waste remaining? A Phase 1 Environmental study can help determine if there were any known prior uses which left hazardous materials on the land. If so, further investigation would be required to determine the extent of the toxins and the recommended clean-up procedures. Many brown-field sites have underlying issues which may not surface if left undisturbed, but which must be remediated if the ground is disturbed.
Animal and Plant Life
Does the site harbor any endangered species, or have any endangered plant life? Certain government agencies need to be contacted to ensure that no listed endangered species or plants are present. Having either of these can limit or postpone development.
Are there any structures or features of the property which are considered historic? Certain agencies need to be contacted to determine if any structures of historical nature are present. If so, preservation measures may be required. An archeological dig may be necessary in order to document the presence (or absence) of prior land use. If either of these occur, development may be limited or delayed until the agencies are satisfied.
Most issues which hinder the development of property can be overcome – but at a cost. These costs will affect the value of the land and are best determined early. Development issues can be flushed out by engaging a local consultant with experience in the planning and engineering of land developments. This consultant can determine which issues could pose problems.
A few hours of due diligence by a consultant may save a developer weeks or months of lost time and money chasing after land which is not feasible for development. Additionally, knowing the issues of a potential site can provide the buyer with leverage at the negotiating table.
Meet with local planners, zoning officers, and engineers. Even if you can get past these major site issues, there may be some other underlying issue with the development of the property. The local officals who process the applications can provide good insight.
Spending a few dollars upfront can provide valuable insight on the development’s “fatal flaws” which can make or break the success of a project.