10 Due Diligence Considerations for Real Estate Developers

10 Due Diligence Considerations for Real Estate Developers
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As Florida’s real estate market and economy pick up steam, we are seeing more and more new developments spring out of the ground. For all of you developers, below are 10 due diligence considerations for your development. Feel free to call Bogin, Munns & Munns, P.A. to discuss these issues in specific application to your project.

1. The Zoning Regulations are too Restrictive

The development process requires sufficient parking, landscape buffers, building sidewalks and storm water drainage components. At the end of the day, these considerations may leave you with an area half the size needed to accommodate the building. The evaluation tools required to make this determination are readily available: contact your local zoning department for basic information, develop preliminary site layouts and then present the sketches to the various approval agen­cies for conceptual approvals.

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2. Concurrency Requirements Deem the Site Unaffordable

The infrastructure required to support a pro­spective site’s development must be available before a jurisdiction will grant concurrency approvals. The key elements evaluated for compliance, among others, include roadway capacity for additional traffic generation, utility availability, and increasingly, stormwater out-falls. Shortfall issues relevant to capacity can be overcome, however the price could prove to be out of reach. Means of compensating for some key concurrency requirements include: making off-site roadway improvements by adding turn lanes or even adding full lanes to roadway segments and retaining all storm water retention on site with no outfall to the right-of-way.

3. The Current Zoning Does not Allow the Proposed Use

Generally, there are three responses possible when making zoning inquiries: the proposed development is allowed as a permitted use, allowed as a conditional use (or special exception), or not zoned to allow the proposed use. The fact that the site is not zoned for the development is not, in and of itself, a reason to walk from a site. However, it is important to determine the likelihood of the property obtaining approvals for the rezoning. The surrounding neighborhood may have more influence over the City or County Commission’s vote than is realized. Obtaining approvals for rezoning occurs regularly, though it is important to know the history of the area to hedge your bets going through the process.

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4. The Future Land Use Map is Inconsistent With the Project

The Future Land Use Map must be evaluated in conjunction with the Zoning Map to reveal the bigger picture for the potential acceptance of a development’s proposed use. For example, the property maybe zoned agricultural with little resistance from surrounding areas to rezone it for commercial development. However, the Future Land Use Map may designate the site for Residential or Industrial use. If this is the case, it’s prudent to gain a thorough knowledge of the likelihood of obtaining approval for an amendment to the Comprehensive Plan to determine the true potential for altering the site’s Future Land Use designation.

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5. The Title Search Proves to be Unclear

The title opinion should be superimposed on the survey so any conflicts are visually apparent. Title discrepancies and inconsistencies can be as simple as a Scribner’s error or they can be so complex that the current owner will need to address the issues. Let the owner resolve title issues prior to moving forward with a purchase.

6. The Survey Reveals an Absence of Utilities Adjacent to the Site

If the survey reveals utilities are located adjacent to the site, the need to upsize the lines or simply connect to the line can be evaluated as costs to the project. Conversely, the absence of utilities on the survey should raise a big red flag to the buyer. Lengthy water or sewer line extensions may prove costly and time consuming. Possible complications could be revealed by the off-site survey or geotechnical information needed. If the cumulative information reveals that the potential costs are too excessive and cannot be shared with the seller, moving forward with the proposed development may prove unwise.

7. The Site is Located Within a Flood Zone

If the survey notes that a portion of the site is located within a flood zone, then on-site water storage may be required to compensate for potential flood-waters. A civil engineer can calculate volume and options for additional storage requirements to address the flood plain encroachment issue. In addition to addressing this storage issue, retention required for runoff on the site must be considered as well. However, the expense, potentially enormous, may warrant looking elsewhere.

8. The Property is Encroached Upon Significantly by Wetlands

If the property is encroached upon by wetlands, there could be significant costs associated with mitigation banks or major setback restrictions in order to maintain the integrity of the wetland area. Contingent on the extent and quality of the wetlands, the potential development limitations may include restrictions severe enough to deem the site unworthy for serious consideration.

As Florida’s real estate market and economy pick up steam, we are seeing more and more new developments spring out of the ground.

9. The Geotechnical Report Reveals Unsuitable Soil Conditions

The Geotechnical Report reveals the soils suitability for the drainage design, which dictates the required size of the site’s storm water retention area, as well as the vulnerability of the conditions of the soils to sink-holes, among other things. In some cases, the site may need significant fill, raising the ground level to accommodate the storm water drainage system. Clearly, with the number of Florida sinkholes in various pockets of the state, if the Geotechnical Report reveals soil elements that are conducive to sinkholes this would be evidence that the site is unsuitable for purchase. A civil engineer should scrutinize the Geotechnical Report’s recommendations to determine the cost versus reward of moving forward with the proposed site purchase.

10. Access to the Site is Compromised

In today’s consumer marketplace convenience rules and as a result, the ability to enter and exit the site with ease is paramount to the success of the business. Due to Florida’s expansive development resulting in a tremendous traffic problem, the state’s governing agencies responsible for roadway construction and maintenance have been forced to limit access in an effort to keep traffic flowing. If access is limited to the extent that customers will not be able to easily access the busi­ness, it may be prudent to walk away from the site.

Spencer R. Munns is a shareholder Bogin, Munns, & Munns, P.A., a full service law firm with offices in Orlando, Clermont, Kissimmee, Daytona Beach, Ocala, Melbourne, Gainesville, and Leesburg, Florida. He welcomes questions and comments regarding the above and can be reached at [email protected].

NOTICE: The article above is not intended to serve as legal advice, and you should not rely on it as such. It is offered only as general information. You should consult with a duly licensed attorney regarding your Florida legal matter, as every situation is unique. Please know that merely reading this article, subscribing to this blog, or otherwise contacting Bogin, Munns & Munns does not establish an attorney-client relationship with our firm. Should you seek legal representation from Bogin, Munns & Munns, any such representation must first be agreed to by the firm and confirmed in a written agreement.

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