Thinking of Developing a Property? Start Here...

Developing a property can be one of the more lucrative and exciting opportunities for a commercial investor.

However, there are pitfalls and obstacles that need to be negotiated throughout the process. Site selection, zoning requirements, development costs, and visibility are all factors that will contribute to the future success-or shortfalls-of your development project.

The following highlights some of the more important items you'll need to consider.

Location analysis: Location is crucial to the success of any business. You need access to the resources, utilities, and amenities to ensure you have all the things you need to run a successful operation. In some instances, you may want to use location analyses or retail site selection studies to better determine which sites meet your individual requirements.

Your commercial real estate agent has the tools and local knowledge to help you prepare a sound location analysis, but there are outside services that will provide more in-depth analysis if required.

Amenities: Items such as water and sewer and available electrical connections are considered site amenities. And you need them. Sites with municipal water and sewer services are typically valued higher, as bringing services to an underdeveloped site comes at a substantial cost. You need to carefully weigh those costs against the desirable features of the site.

Larger developments may be able to negotiate with the local municipal government over offsetting the substantial infrastructure costs. However, don't factor these potential savings into your planning process. They may not happen.

Zoning: Rezoning costs can be substantial, and the process can be lengthy. Zoning is tied to the community plan and typically considers the "highest and best use" of a property. You may want to consider making your offer conditional on obtaining the appropriate zoning. However, discuss options with your agent before raising this, as this condition may well be a deterrent to the seller.

Visibility: The purpose of the development will typically dictate what type of visibility is most desirable for the project. For a multifamily residential development project, you will typically look for a site that offers a view, while industrial or commercial developments will typically favor highway visibility.

Property taxes: In some municipalities, there are tax breaks available for investors who are developing property for factories and other large developments that bring long-term jobs to the area. This varies by region, and diligent research will be required to find municipal tax incentives.

Environmental assessments: These are often required when purchasing a development property. Typically there are three phases to an assessment, and the requirements will vary based on the intended use of the property. Depending upon the outcome of the environmental assessment, an environmental impact statement may be required.

Development Costs: The cost of developing a site varies depending on your individual requirements. Many developers budget more for cost of development than for the initial cost of the property. These costs can include building permits, impact fees, surveys, engineering inspections, clearing, and landscaping, to name a few.