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When it comes to due diligence, the sooner we do our front-end homework, the better off the project may be. While some developers may want to pinch pennies in the beginning of a project, early due diligence often requires only a small amount of money that’s well spent because it helps us flush out issues up front.
I have a project in Tennessee involving the development of 40 acres. The owner identified a site and asked us to proceed with geotechnical, environmental and surveying work that would cost several thousand dollars.
Before jumping in, my suggestion was to have them spend a minimal amount to let us do some due diligence to make sure there wasn’t a major issue that might rule this site out. The owner agreed; so we performed due diligence and found that there were significant environmental issues that could not be economically overcome. The owner walked away from the site having spent thousands of dollars less than if we had performed the studies originally requested. That’s a significant savings thanks to early due diligence.
There are many potential issues that I think of when someone calls about a potential development that, if given the opportunity, we like to investigate on the front end.
• Zoning restrictions. Zoning restrictions give us a feel for what our initial design parameters are. If the zoning is not conducive to what needs to be developed, we can take care of it if we know about the issue early on. If you want to develop an industrial warehouse and the site is zoned residential, then all the neighbors may put up such opposition that the project falls through; so it’s important to know about zoning as soon as possible. There are other zoning considerations that can be investigated early to aid in the development of a project.
• Access to the property. Does the property have direct access or does it have limited access that only allows you to get on the property in certain areas, similar to U.S. Highway 280? This may be a “deal-killer” for some developers.
• Environmental hazards. Does the property lie within a flood hazard area? Are there wetlands or waters of the U.S.? Are there visible potential hazardous materials on the property?
• Topography or geology. Are there challenges that need to be identified instead of simply focusing on a two-dimensional site plan?
We recommend having a quick conceptual layout plan done to show how the building and parking could be oriented on the property if developed. The concept plan allows us to see how well the project may fit on the site. We’ve ruled out many sites with this step.
Early due diligence has been an extremely valuable step for many of our clients. My primary message is to consider spending minimal money on the front end of a project by performing due diligence tasks in an effort to avoid spending a lot of money only to later learn that the project objectives cannot be met.