So, you want to be a developer? (Pt 2)
C. Edward Boyle April 30th, 2008
Back for a second dose, huh? Well, here it comes in the form of another article. This time, we are going to address the selection of property that you are going to buy for development.
The first step is deciding what you would like for your development specialty. Single family homes? Office buildings? Neighborhood retail space? Residential lots? This is all up to you. You can be successful in any of these arenas if you are focused and stay on top of the game. Most of the readers will have heard the answer to the question “What are the three most important aspects of a piece of real estate?” In case you don’t know the answer, here it is for absolutely no charge. 1: Location. 2: Location. 3: Location. It may well be a cliché but it’s true, true, true. Lake Washington waterfront land was more valuable than Queen Anne Hill land, which was more valuable than Phinney Ridge land, which was more valuable than Woodinville land (assuming common zoning, of course) in 1970. It is still true in 2008. It will be true in 2025.
The second thing that is important about land, regardless of location, is that there is some level of utility. Location being equivalent, land zoned for commercial uses is more valuable than land zoned for multi-family use is more valuable for land zoned single family residential. The zoning is not the only measure of utility, however.
Given equivalent location and zoning, a nearly level and generally dry piece of land is more valuable than a steeply sloped piece of land is more valuable than a wetland. (Yes, I know that there are people who think that wetlands are highly valuable, and they may well be right. But we are talking about utility of the land for use by humans, not frogs or spotted owls.) Why is this true? It is simply an accurate statement that utility is also tied to the total benefits available from the land. It is much easier to build roads and streets and to install utilities such as sewers and water mains on flat ground. It is easier to build a house (or just about anything else, except maybe a ski resort) on flat ground. Most land use codes now incorporate rules for the total lot size in a given zoning, and the size of each lot usually goes up as the slopes get steeper.
The third thing to think about is the access to the required utilities, the existing surface transportation routes, and the availability of such things as sewer hook-ups, domestic water, and so forth. The Sammamish Plateau has a lot of nearly flat land that is generally dry and has desirable zoning. It is a desirable area with new schools, golf courses, new homes, new neighborhood shopping centers and strip malls, and all of the other things which are attractive for new development. It is clearly in the path of progress – witness all of the new construction occurring at this moment. It must be a good place to take the plunge and invest your money into some type of development project -–right? Well, maybe not. You see, I failed to list all of the things that the Plateau has. It also has a near gridlock of traffic. This has prompted the requirement of developers to get certificates that allow them to add to the traffic, and they’re not easy to get. Oh yes – the area also has a lack of available domestic water hookups. The only way to get a letter of water availability is by lottery, and there are a lot of projects on hold because they have not yet won the lottery. By the way, neither of these two deficiencies is likely to be fully cured within the coming decade. Maybe the Sammamish Plateau isn’t a good bet for a fledgling developer after all.
The fourth principal consideration, at least from my personal point of view, is “what’s the political environment?” Is the area pro-development (rare around here) anti-development (much more common) or are the bureaucrats just doing the job assigned to them without injecting their personal philosophy into the equation. It is a most unfortunate situation, but people with an agenda staff most of the building departments, planning departments, land use departments, etc.. It is natural enough, I suppose, that some people who “care about the environment” gravitate toward careers which allow them to influence land use and environmental issues. That’s probably laudable. The problem, however, comes from the simple fact that they have the ultimate say. It is often based on interpretation.
Another general observation is that most of these bureaucrats have a limited tenure. I know of some of the reasons why they move onward, but obviously not all. One of the most important is that people in the public sector who really understand the issues, work toward solutions, and treat developers and the general public with courtesy and cooperation end up getting a job in the private sector, working for one of those very developers in getting project entitlements because they “know the ropes”. It is not just the bureaucrats who can get in the way. Individual citizens and groups of citizens can also cause grief. There is a strong attitude among many that says “I got mine – You go somewhere else to get yours”.
Overview
So what have we learned about selecting a development site? Let us review and enlarge on some of the issues.
A) Decide what you want to develop. Lots, houses, commercial, offices, downtown towers, all are possibilities, and all are needed on one area or another.
B) Find a good piece of land on which you would like to perform your miracle. Ideally it is well located, relatively flat, has good street access, has little or no wetland or other environmentally critical issues, has an adequate water supply available, has sewers or adequate septic system possibilities, has the other required utilities available, and is located in an area which is tolerant of growth. It also will have good soils with the ability to physically bear the improvements you have in mind. Of course (since you already considered the location aspect) it is located where there is an existing (and likely continued) market demand for this thing you want to develop.
C) Consider the access to the parcel of land. Is it easy to enter and leave? An otherwise good location may be rendered less desirable because it is too hard to access due to fast traffic, poor lines-of-sight in the streets, or difficulty in building a street to connect to the existing roadways.
D) Consider compensating factors that may be of interest to the market. These can frequently add enough value to override other concerns. Think about Somerset, for example. This development was done on fairly steep slopes. The compensating factor was the good to great views afforded by the hillside lots. Yep, it cost more to develop than if had been flat land, but the lots sold for a premium because of the views. And it did have location, even at the time that it was developed.
E) Get to know the people in the public sector who will be responsible for putting their blessing on your dream. They are usually quite helpful in doing a preliminary assessment of the feasibility (physical – not economic) of your project. They have a lot of information available. You can learn from them about how much your various fees will be, what mitigation fees might be required and when they must be paid, what construction standards might be, what the specific zoning will allow (both maximum and minimum), whether utilities are available and if so where they are currently located, what the project application process will be, how the entitlement process works in that jurisdiction, etc. No one person is likely to be able to give you all of those answers, but the planning department can usually provide many of them and tell you whom to see for the balance of your answers.
By the way, some of the answers you get will be preceded by “You can probably” or “It is possible that”, or “We usually”. Just ignore this and assess the reliability of the answers as realistically as you can. Too many times a “You can probably” is heard as “You can” by the future developer. Then the bad surprises are all set to start. When they do, the most commonly heard phrase from the developer is “But you said –“. Do not fail to understand that the answers you get are in no way a guarantee of anything. They may (or may not) be entirely accurate at that moment.
The rules change, however. And the rules that apply to your project are those which are in force at the time that you submit a complete application. (The bureaucrats are the ones who determine when it is complete.) That’s when your development rights become vested, and not one moment sooner. The rules and regulations at that time are the ones which can be enforced (by all parties – interested private citizens, the bureaucrats, and the developer).Well, you’re all ready to go now! Then again, maybe you would like to wait for the next article where we will talk about acquiring the land, and the basics of doing an economic feasibility study. The subsequent articles will be: The application process and getting entitlements; Estimating realistic development costs; and Developing your vision.