Favorable Land Deals
Position Your Site for Success
by Dana Burkhardt
In today's difficult economic climate, land deals are moving at a snail's pace, requiring prospective sellers, buyers and investors to approach their next transactions creatively. While landowners are speculating their property values at the top end of the falling real estate market, buyers are sitting on the sidelines, patiently waiting to snatch up the next property that hits bottom.
This conflicting state of affairs demands a new line of thinking and success-targeted strategies. Simply put, the success of your next land deal hinges on five key factors that drive the decision-making process: location, site constraints, entitlements, concept and marketing.
We frequently see email marketing solicitations with a vicinity map and the site highlighted, touting the development potential as a unit count or leasable square footage to justify the square foot asking price. The difficulty for prospective buyers is that while they are sifting through multiple property ads, they play an educated guessing game to determine which sites they should actually move forward on to due diligence.
If you are like most in the industry, you cannot afford to overlook or be overlooked in this highly competitive real estate market. In my experience consulting developers, builders and land investors, I have determined five common practices exercised by clients to navigate future market challenges and reduce risk while planning future opportunities.
Focus On Location
The number one aid in marketing land or a development opportunity is no surprise ... location. One thing is certain: if a location is not ripe for development now, it will be at some point in the future. Focus on site location as your number one priority when acquiring new land or marketing your conceptual projects.
Infill sites are currently most desirable because they are typically supported by existing infrastructure and thus, offer close proximity to urban services. They also employ responsible, smart growth planning principles, concentrating the population near existing parks, schools, businesses and transit. These sites obviously command a premium and should sell at a premium, especially as gas prices continue to rise and public transit programs continue to develop.
The reality is that not all developable property qualifies as infill. Particularly in suburban areas, a seller or buyer must qualify the site as a great location either now or in the future. Review long-range transit plans, future land use plans and policies, and use that information to your advantage. Your property may not yet be ripe for development but as long as you are aware of its potential, there should be no surprises when justifying the value. Whether you are prospecting for new a development or marketing existing holdings, location will continue to be a driving force in property value and development.
Determine Site Constraints
Buyers are looking for good land deals at reduced rates. The danger of some of these deals is that land that seems to pencil out as a good deal may hold unknown constraints that substantially reduces the useable area of the site. For example, it is not uncommon for a land planner to be commissioned for a density study aiming to achieve 20 dwellings per acre on a 10-acre site and discover that only eight useable acres are available. In such circumstances, the planner would need to achieve 25 dwellings per acre to meet the pro forma, which may necessitate a different type of structure than the client anticipates.
Common development constraints include rights-of-way and easement dedications. Restricted curb cut locations can significantly affect density, depending on their location and quantity. And for commercial sites, limited access can have considerable impact on exposure to traffic. Other items to consider are whether the jurisdiction requires on-site storm water retention and if it allows underground or above-grade storage facilities. Above-grade retention basins typically consume 10 to 15 percent of the land area, while underground facilities come at a greater cost, which is offset by greater useable site area.
Entitle Early
It is never too early to begin the entitlement process and it is relatively inexpensive to make a preliminary agency submittal. During the current economic slowdown, many cities have begun downsizing staff, resulting in longer review times and an overall slower process. If you plan to bring a new development to market in 2010, you should begin rezoning processes by early 2009 at the latest.
In addition, there is no question that entitled land has a much greater value than non-entitled land. It will obviously sell at a premium and reduce the guessing and scheduling work for the builder. Properties with zoning entitlements in place are rare these days, and the few projects that are entitled are coming back for redesign to meet changing market demands. By obtaining preliminary review comments from the governing agency, you can gain consensus on design, density or land use.
It is very important to ensure that the vision for a site can be supported by the governing agency. In addition, this collaboration and review process will identify potential problems such as neighborhood opposition and traffic concerns, and it will provide you with a timeline and procedure for entitling the site. This information not only determines the viability of a project but can pinpoint key issues that may affect the ultimate value of the project.
The Concept
A highly useful tool in marketing a land or development opportunity is a conceptual land plan that can easily be quantified in a pro forma budget to help determine market rate for the land and feasibility of the site. Conceptual land plans (or density studies in the case of a project that includes residential development) should consist of one or more visual aids-such as a preliminary site plan and thematic character imagery.
The concept plan is a loose representation of the project in the form of a site plan that shows pedestrian and vehicular circulation, parking areas, connections to surrounding sites, building locations, parking, amenities and open space, onsite drainage retention areas. It also identifies undevelopable portions of a site. This plan should also take into account strategic development phasing to help reduce up-front infrastructure costs. The initial concept is exactly that, and it should be considered an evolving program that changes with the market conditions.
A quality concept plan will identify residential lot sizes and mixture, commercial square footages (if the site involves mixed uses), and in the case of attached multifamily development, building footprints and dwelling unit quantities. The plan can also identify residential unit square foot ranges, construction types and other elements reflecting the target consumer.
All of these items can be quickly quantified by contractors and/or a civil engineer. Ideally, the concept plan can be prepared in a relatively short timeframe for a nominal fee by a multidiscipline firm experienced in planning and architecture. It can also be updated or revised as necessary.
In some cases, developers will commission more than one land plan to aid in the marketing and due diligence of a site. For example, the two concept drawings shown were prepared for a client interested in marketing a site to single-family and multifamily attached builders. The single-family concept shows a nine unit per acre, detached auto court, cluster, small lot housing concept, and the multifamily site shows a 22 unit per acre luxury rental concept that could also be developed as for sale condominiums.
This developer specifically targeted two separate builder disciplines by illustrating two preferred housing products in the South and Southwest: affordable single-family homes and market rate, luxury rentals.
Also consider additional supporting graphics to help market the project. Basic building elevations and/or community perspective renderings will illustrate the curb appeal of your vision and create a strong theme for your project concept. The development program should be conceived from a detailed market study; this is not always feasible but certainly helps validate your proposal.
A conceptual land plan can provide negotiating power with a land seller or buyer by representing a product concept graphically with attributed densities or leasable footages. The plans provide a relatively transparent valuation of a property's potential to assist the buyer and seller with coming to terms on the current value of a site or development proposal. They are equally helpful in gaining or gauging a preliminary buy-in from the approving agency.
Marketing to Many
Marketing a new project or concept must take on many forms to appeal to a diverse audience. The concept may be solicited to buyers, sellers, a partnership, a board of directors, brokers, financiers, city agencies, the housing authority and others. Aside from government agencies, each audience is looking for economic viability. It's not difficult to assemble a budget and feasibility report, but this alone is not enough. Presenting a thorough and unique concept with strong thematic graphics will demonstrate a higher level of diligence than less illustrative proposals.
The current real estate and development climate is challenging the industry, and success requires more involvement and diligence than ever. Each step of the real estate and development process requires marketing, and the audience broadens as the industry becomes more competitive. Understanding where projects fit in the grand scheme of development-and having patience and proper planning to execute at the right time-is the key. All sites are opportune at one time or another. Being prepared with a solid concept, agency endorsement and a multi-tiered marketing effort will set the stage for success when the time is right.
BSB Design
480.663.2100
Dana Burkhardt is a Senior Land Planner with BSB Design in Phoenix and a member of the American Institute of Certified Planners. Burkhardt is a key player in BSB Design's national green initiatives with expertise in sustainable community design and LEED certification in the Southwest. In addition, his experience as a city planner has contributed to his in-depth understanding of municipal negotiations and the entitlement process.
