Part I: Acquisitions – the pitfalls
With so much at risk in a development project, experience is paramount. While searching for the right property, stumbling into the wrong deal could prove disastrous. Here are a few pitfalls to avoid when shopping for a development property:
- Comps – Depending on the type of development in speculation, specific and related comps may or may not be relevant even if they are zoned for the same purpose. For example, a developer may be looking at a G-MU-3 lot in a popular area and assume another party paid a given amount for a very similar lot so the two would be relatively similar in price. This is not always the case, however, especially due to setbacks. In G-MU-3, a property will have a primary street front setback meaning that the developer will be required to adhere to specific regulations set by the city based on how far the neighboring properties are from the given property line. Knowledge of this zoning beforehand could prove to be a major indicator of whether a property is suitable for the project.
- Public Utilities – A site may seem ideal on the surface, but more research could enlighten a developer to the true nature of the property. For example, we came across a property that seemed to be idyllic for a project until we discovered it had a sewer main running through the middle of the site. This discovery meant that we would either reroute the entire line or change the original building plans which would result in fewer units. Neither option was viable so we found a site elsewhere that better fit the needs of the developer. Another overlooked factor, with regard to public utilities, is overhead power lines. Moving these lines could cost the developer time and money originally designated to the project.
- Assumptions – Assumptions concerning the buying and selling of a property will never result in the desired outcome. Due to the finicky nature of this business, allowing yourself time to use experts is crucial to making the best financial decision. Sellers often want to close a deal immediately, but it is important to be thorough and not overlook a detail in the excitement which could result in a much larger problem. It is also important to note that it is acceptable to walk away from a property if it does not suit your needs, or the seller is pushing for terms that do not fit your project. An expert will be able to look at the site, including plans which need to be presented to the city/county, and know if it is a good fit, thus protecting the developer from what could be a disastrous deal. This extra set of eyes will allow for a smoother overall process from the fruition of the project.
redT Homes has a highly experienced acquisitions team that is well versed in the workings of the current market. We understand how to deal with the city, and more importantly, we recognize what would be the best overall value for the developer. We take all aspects of the building process into consideration before moving forward on a property so as to guarantee the best outcome for the project. Expertise is necessary when navigating the often rough waters of the Denver market, especially in booming areas around town where competition is high. This first step of the development process is crucial, and our team has a proven record of successful transactions which resulted in profitable developments.