S.E.C. Real Estate Observer

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What do I have to have to go vertical? What if I am acquiring a property that the seller says is “ready to go?”

Some developers only perform horizontal development—nothing higher than a fire plug. Examples of this are land developers for residential subdivisions and large commercial tracts. So, what questions do I need answered? The list below includes some—but certainly not all—of them. Let’s start from the building permit and go backwards.

1) You must have complete city/governmental approvals to be able to secure a building permit for the vertical development. So, what does it take to get there?
a) Does the city have a “Unified Sign Agreement” or similar process where you can determine the pylon, pole, and monument signs (not attached building signs) during the land development process? Having the sign issue solved during the land development process can save a lot of time if you have a retailer or restaurant that needs to open quickly.
b) What are the “tap fees” (the right to connect to water, sanitary sewer, and storm sewer lines)?
c) Are there additional transportation impact fees, domestic water impact fees, sanitary sewer impact fees, and storm sewer impact fees? Have these already been paid?
d) Are there other fees?

2) Special approvals could be required.
a) iSWM (integrated Storm Water Management) or SWPPP (Storm Water Pollution Prevention Plan). This can also be known as SWP3. I am covering these two topics in one paragraph, but don’t think it is easy. The EPA updated its guidelines for iSWM and it is the bane of developers—and cities—all across the country. In short, you can have a fully approved iSWM approval and the city or other jurisdiction can come back to you and tell you that you need to upgrade to the new guidelines that few know how to interpret. Think “ADA.” The SWPPP is the plan that must be in place prior to construction to catch your runoff from depositing dirt into lakes and rivers. It also includes methods of containment of dust during construction.
b) Urban Forestry identifies “significant” trees that must be saved or replaced under the city’s code.
c) Is the “detention” or “retention” plan in place? Sometimes this can be estimated prior to vertical development, especially on larger projects. A global detention plan for a 200-acre commercial or industrial project will save a lot of money when compared to detention on a site-by-site basis. And the developer can sometimes use less desirable land for the detention basins and gain a higher price for the individual tracts.

3) Utilities also need to be considered.
a) Water and Sanitary Sewer are commonly supplied by the city. These are some of the very few services that a city can make money on. Most of the other services (fire, ambulance, and police) do not make a profit. But the water and sanitary sewer are also very expensive. Look out for those impact fees.
b) Storm water management is another utility commonly provided by the city, but it rarely makes money. Watch out on this one also.
c) Electric, natural gas, cable, and fiber optics are usually supplied by outside firms. Years ago these “Franchise Utilities” were very accommodating, but not so much today. Deregulation has given them the right (Franchise) to charge you for just about everything. And if you have a tract of land where you need to relocate a utility, get ready for heartburn. Make certain you check with the Franchise Utilities before acquisition of that tract. Are all utility extensions in place?
d) Are all utilities available in a capacity that will serve the development?

4) What is the topographic situation you are dealing with? Flat is not always good, especially if the ultimate development is going to be dense. Does the topo cause you trouble or help you? A gently sloping site can be good if you are building dock-high warehouses. A lot with beautiful hills, though, can cause issues in big box retail. Also, most retaining walls in excess of four feet must be engineered and can be quite expensive. Knowing your topo during planning can help you save significant dollars in the planning process.

5) Sites on busy streets or highways are great for retail, but did the site developer give you a TIA (traffic impact analysis), and has the state highway department or city accepted the TIA? Do you need deceleration lanes? Our TXDOT deceleration lanes are running about $75,000 each in Fort Worth, and TXDOT inspects every step of the process. That can slow construction while you are waiting on them to show up. And it is not unusual for our TIA to cost $35,000–$50,000—just so I can give land to the state and build a driveway into my property!

6) What are the specifications of the streets and so on in the subdivision? Is the street designed to tolerate the weight of dumpster trucks? What about trucks full of crude oil or frac water?

7) Is the plat filed of record? If not, it means nothing; the city can require revisions and you might not like them.

8) Was there a preliminary plat? Does it have city approvals and are they still current?

9) Some cities have PreCon’s, a pre-construction conference meeting with the contractor that is building the infrastructure (streets, utilities, etc.). The notes are public record. Remember, once it is public record, the city is obligated to disclose it.

10) Many cities have what we call “DRCs” (Development Review Conference). If you are in acquisition of a fully developed tract, ask for a copy of the DRC. The notes from a DRC can tell you a lot.

11) Was geo-tech performed on the site? The geotechnical engineer’s report is going to tell you what your foundations must include. Expansive clays can add thousands of dollars to a foundation, but that is cheaper than repairing the building later. I order geo-tech fairly early in the process of any development.

12) So, we are back to the start of the process: the surveys.
a) First, you must have a boundary survey to know what you are getting into. How much land are you buying and what restrictions and easements are coming with it? Do you have the full package: surface, minerals, water, air, and so on? The boundary survey gives you the legal description of the property.
b) The shale oil technology has caused a lot of issues throughout the country in what was never before oil country. One thing that many never consider is the rights of the mineral owner. If someone other than the surface owner owns the minerals, the mineral owner may be able to just show up and stake a well right in the middle of the tract you just acquired to build a shopping center on. If you are not acquiring the minerals, make certain you get a surface use waiver from the mineral owner. If you can’t get that, at least get an agreement on where the well may be located and the potential easements for oil and gas pipelines.
c) The topographic survey provides the lay of the land. It is impossible to develop land without knowing the topo.
d) The tree survey is very useful in determining if there are trees you want to save. And if you have an Urban Forestry requirement in your area, it is a quick way to prove to the arborist that there are no significant trees on your site. This is additionally useful if you need to start preparing ahead of time for landscape mitigation.

13) One of the first things we want to know is if there is an existing ESA (Environmental Site Assessment) or AAI (All Appropriate Inquiry). The Phase I ESA or AAI gives the purchaser the benefit of the Innocent Landowner Defense with the EPA. If there is an existing ESA, I might wait until later in the acquisition process to buy another one, but I will not close without a Phase I in our name. It is cheap insurance.

The discussion above is meant to provide food for thought. It is not a complete check-list, but at least it is a place to start. Please feel free to chime in and add to the list.