Part 1: Horizontal Development

Real estate development is a hot and trending topic these days. With several paths of entry into the industry and potential success, it has intrigued many to get started whether as a real estate agent, developer, consultant, or investor to name a few. As we all know, existing commercial real estate property prices have been steadily increasing. Therefore, making smart decisions is critical to mitigating risks as much as possible. In real estate, knowledge is key as the more you know, the more you’ll succeed. Here are the important aspects you need to know before diving into real estate development projects:

Horizontal vs Vertical Development

Horizontal development is different from vertical development in that horizontal development consists of the literal building blocks of the project. This includes all of the dirt work, utilities, and foundation.

Vertical development on the other hand consists of everything above the foundation that will be built vertically. This article will focus on horizontal development with a second part focusing on vertical development coming up next.

Land

When it comes to evaluating the land for a development deal the first thing you should look at is the plat survey. The survey will tell you the legal boundaries of your land parcel along with any utilities and easements going through the property. Most utilities will not let you build permanent structures on top of their easement. We once did a project that had a natural gas pipeline running through the section of the property that was designated for a parking lot we were laying. The gas company wanted gas sniffers installed in the parking lot which would alert the gas company in the event of an underground gas leak. In addition, if the easement is for right-of-way to an adjoining property, you will have to lay out your site plan so the easement is not encumbered.  Along with the plat survey, you want to get an elevation survey that will show you how high the existing grade is. On one of our projects, the land had to be raised four feet above the existing grade as required by the county. On a larger project, such as a multifamily development, that can add thousands of dollars to your budget. Be aware of whether or not any part of the property has wetlands on it or is in a flood zone.

Entitlement

The permitting process and the jurisdictions involved in obtaining those permits can be a daunting process. Most reputable engineering and architect firms will know the process and requirements for obtaining permits. Depending on the scale of the project, the permitting process can sometimes take 12-18 months depending on the jurisdictions involved. If you decide to carve up the land parcel into smaller parcels, known as replating, the entitlement process may even take a little longer.

ROW (Right of Way)

The right of way process is very important as this will determine how traffic will flow in and out of your property. For large multifamily, retail, or industrial spaces, the movement of traffic will be a very big factor as to whether or not your development is successful. The city, county or state, depending on where the property is connected to will determine where your driveways are located as well as the requirements for any medians, traffic lights, and traffic flow. For example, we had evaluated a project for a gas station where the county granted us an additional driveway but the state overrode and would not allow it since traffic was coming off of a state highway exit.

Utilities

Another important aspect of evaluating a land parcel is where the utilities are. Water, sanitary, stormwater, and gas lines may be hundreds or thousands of feet away and can be a big portion of the development costs. Sometimes when an area is growing rapidly, the utility district may not have the capacity to serve new development. In that case, you may have to wait 2-3 years before new capacity is available. Some jurisdictions will require a detention pond or retention pond to hold any stormwater which will decrease the usage of your land parcel.

Although these are all very real challenges they can be mitigated through vision, experience, solid team members, and due diligence. Timing, timing, timing… Having a complete upfront understanding of the timing involved with all these processes will help you successfully navigate an on-time project.  By challenging your team members to run these processes concurrently you can eliminate dead time. While some of the tasks require others to be completed, most can be completed independently.  Being aware of the entire scope of a project and proper planning can yield great results. All this being said, the rewards in real estate development projects can and will most often outweigh the risk. What I have found at times is that having a property with challenges behind will surprisingly prove to be a more valuable property. Once platting, surveying, permitting, ROW and utilities are complete you have navigated most of the horizontal processes awaiting to launch vertical construction.

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