Imagine you are driving in your car and you see a large vacant lot near a hospital with a huge sign on the property captioned “Land for Sale.” The sign also has a broker´s name and phone number.
Developer vs Engineer & Architect
- How do you determine whether or not a project makes sense on this piece of dirt?
- What are the criteria for judging if a development project is viable?
- Is an office building the highest and best use for this property?
- What if there is already an office building that is almost entirely vacant, but the employees are having a difficult time finding affordable living space?
The first step is to collect additional information about the project. You call the broker listed on the “for sale” sign and ask general questions.
- Is the property still for sale and, if so, what is the asking price, lot size, and zoning?
- Would the seller consider a joint venture?
- Is there an architect involved and, if so, has he completed a preliminary site plan and/or construction drawings?
- Are there any potential problems with the site such as compacted land, drainage issues, or environmental problems?
Making further inquiries as you go along, as well as retaining the proper experts to help you gather information, will hopefully clear up many of the unknowns. You hire an engineer and an architect who reviews zoning and determines the type of construction that is permissible and the potential density of your project, given the site constraints.
You might hold a meeting with the appropriate city planning official, with your engineer or architect in attendance, to better understand what the property is entitled for, that is, exactly what may be built on the site at this time.
- What does the city or appropriate governmental entity want on this site?
- What are the set back restrictions?
- Are utilities, for example, gas, water, electric, brought to the site?
- Does the city have any special rules, such as unusual drainage requirements?
If you elect to go further with the project the site should be placed under contract, since money must be spent on due diligence items at this point.
From the buyer perspective: the purchase and sale agreement should allow the buyer an adequate period of time to conduct due diligence without risking capital with the seller. Enough money must be spent on due diligence at the initial stages of the project without additional nonrefundable funds being paid to the seller.
From a developer point of view: the ideal scenario is to tie up the dirt without committing nonrefundable monies until he is ready to put a spade in the ground.
From the seller perspective: a reasonable period should be given the buyer during which he may explore the viability of the project and the site but then the buyer must commit so the refundable good faith deposit becomes a nonrefundable deposit, applied to the purchase price if the buyer closes, yet retained if the buyer fails to close.
mrleenote 