Commercial Real Estate Development Process
When you’re looking at potential commercial real estate development opportunities, there are certain elements worth considering:
Market saturation: "Learn the local saturation level for the type of project you have in mind. For instance, if you want to build a hotel, ask yourself, “Is the area already overloaded with hotels?” If it is, you might want to look elsewhere. Alternatively, think carefully about how you will make your hotel stand out from the rest."
Local zoning laws: "Before you buy property, be sure the local zoning laws permit completing the project according to your vision. Developers often realize they have problems with local zoning laws too late in the process."
Crime: What’s the crime rate where you plan to build? If you got a great price on a property because crime is high but the area is improving, that might be advantageous. But if the area is not up and coming, you might wind up with a poor investment.
Natural disaster risk: A lot of people dream of owning a beachside bar in Florida, but what happens when a Category 4 hurricane blows through? Developing in an area with natural disaster risks means you have more to consider, such as building materials, special zoning laws, insurance and more.
Potential liabilities: When you find a property you like, don’t take it at face value. Instead, dig deeper. Some properties have hidden liability issues that cause a variety of problems. For instance, a building might need asbestos or lead paint removed before it can be used. Additionally, research a building’s history. If it housed a previous tenant who worked with chemicals or toxins, you could be adopting an environmental nightmare.
Building a Development Process Checklist
It’s important to conduct due diligence on a property because most surprises aren’t positive when it comes to commercial real estate development. Before you start planning and developing a project, use this commercial real estate development process checklist to ensure you have everything covered.
Pre-Acquisition of Property Checklist
- Confirm seller’s name on title (section Schedule A)
- Confirm accurate legal description of property on title
- Confirm zoning verification
- Obtain recent surveying and/or plat maps
- Obtain UAV topographical survey
- Check for tax liens
- Have appraisal performed
- Check for judgments
Utilities, Access and Environmental Checklist
- Confirm access to utilities
- Obtain and review declaration of covenants, conditions, restrictions, reservations and easements
- Review mineral, oil and gas rights
- Obtain and review environmental and engineering reports
Existing Property Checklist
- Check accounting of rents, income, common area maintenance, tenant tax contributions, rent roll and other rental-related documents
- Obtain security deposits and other tenant amounts, if applicable
- Obtain a copy of existing insurance policies, certificates and pending claims against the property
- Obtain a schedule of pending litigation, if any, affecting the property or seller’s ability to convey the property
- Document pre-built natural land features
- Document underground utilities
- Document in-slab utilities
- Photograph progress
- Provide documentation to facilities teams
- Use video, or video walk-throughs, to presell units
- Use video marketing to secure future investment and bids
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