Commercial Real Estate Buyer’s Checklist – Commercial Land Acquisition Research –
Commercial Real Estate Transactions can be difficult to navigate. This is the forth article in a several week series regarding the Commercial Real Estate Buyer’s Checklist aimed at simplifying your next commercial real estate purchase.
Commercial Real Estate Buyer’s Checklist – Week Four – Commercial Land Acquisition Research
If you are a seasoned commercial real estate buyer or broker reading this article, feel free to skip the below links to the previous three articles in this series. If you are new to commercial real estate acquisitions or would like a refresher course, I highly recommend going back and reading the previous articles so that you can better understand what happens after you find your site.
See below links to the first three weeks of this series:
Commercial Real Estate Buyer’s Checklist Item #15 – Commercial Land Acquisition Research Checklist- We discussed “making the offer” in week one. In week two’s article, we discussed how your commercial real estate broker should be the “quarterback” of the due diligence team (team you need to assemble to fully research the property once you have an accepted contract). We also learned in week three’s article that the commercial real estate broker should be the head coach of your site acquisition team (we also covered topics specific to commercial investment property acquisitions). To build off of the momentum that we picked up in week three regarding site acquisitions, this week’s article covers a list of items specific to commercial land acquisitions.
Below is a list of topics that I would recommend researching when considering a commercial land acquisition:
#1 Price – Is the land price in line with market for this type of property? Your commercial real estate broker’s relationships with local appraisers in the area you are considering for purchase can aid your understanding of sales comparables…in addition to the research he or she completes for you regarding asking prices in the area (on and off market). As mentioned in week 2’s article, the due diligence period is not the time to decide “IF” you want to purchase a property…it is the time “confirm” your purchase. On the contrary the site acquisition period is the time to decide “IF”….so make sure to learn as much as you can prior to making an offer! In week three’s article we discussed some of the topics important to determining if your commercial investment property’s purchase price is in line with market. When considering “price” for commercial land, in additional to researching market comparables (sold and asking prices), it is important to also consider what improvements will need to be made to each commercial land tract in consideration…to allow your desired use to be developed. For example, a platted lot that is “shovel ready” (utilities, zoning, platting, sewer, curb cuts, water retention/detention, easements, driveway, etc are present) could save the buyer time and cost significantly less to develop than a raw land tract. Determining how competing properties stack up in terms of estimated horizontal costs to prepare for development (in addition to the land price) will aid the buyer in having a more apples-to-apples comparison between sites. For example, a “shovel ready” pad site in the right location priced at $16/SF “could be” (countless other variables to consider) a better purchase price than a raw land tract priced at $10/SF…in the event than it costs $6/SF+ in horizontal costs and a year of site work and platting to prepare the site to be developed.
#2 ALTA Survey – ALTA stands for American Land Title Association. ALTA Surveys are more detailed than most commercial real estate surveys and can often be more expensive and timely to have completed. It is our recommendation to order an ALTA survey on development projects. An ALTA survey specifies the property boundary lines, location of any improvements, identifies easements (access, water, gas, telephone, aviation, railway, utilities, etc). Typically, the buyer isn’t going to order an ALTA survey until they are under contract to purchase a property. The reason I include ALTA Surveys in the commercial land acquisition checklist relates to my opinion that sellers of commercial land can increase the likelihood of a transaction occurring IF they will order an updated ALTA Survey prior to bringing a property to market. Please make sure to spend time researching the survey and any other documents that the seller will provide prior to making an offer.
#4 Zoning – Zoning is the process of planning for property use types by a local government to allocate certain kinds of structures in certain areas. In the State of Texas, Zoning regulation has been delegated to local political subdivisions from the State of Texas as shown in the Texas Local Government Code. This delegation causes zoning rules to remain different in many Texas Cities. It is critical to fully research zoning rules in the area that you are considering for development prior to proceeding with any project. Once you have found a site that you are seriously considering, I recommend meeting with the local city zoning/development office in person (or “online” depending on how much information the municipality provides) so that you fully understand the rules of the property in question. Zoning also includes restrictions in differing zoning areas (ex. building heights, the density, types of businesses, etc). We also recommend obtaining an approved “specific use” letter from the city prior to acquiring the property if at all possible (during due diligence). For the purposes of the acquisition research period, I recommend learning as much as you can about the property’s current zoning classification and how it relates to your desired use.
#5 Platting – Before most city’s will issue a permit to modify or build on a site, they require that the property be platted into a lot. It is important in your commercial site acquisition research that you determine IF the property has been platted. IF the property has been platted, it is important to determine IF the existing plat will work for your desired use. If the property has not been platted or will require a re-plat (or amending plat), it will be important that you gain the advisement of a civil engineering firm (a proposal for these services and other due diligence research during the feasibility period would be nice) to provide consulting relating to time frames, cost, and expected outcomes of platting work prior to making any offers. The civil engineer can also be very helpful in determining “estimated” (unlikely you are going to pay for detailed research until you have limited your search) costs mentioned in bullet point #1 to prepare each site for development.
#6 Use Specific Requirements – In order to target their desired locations, retailers and restaurant groups require for the acquisition brokers and developers to have a major understanding of demographics and traffic flows. National and local health care specialty groups typically require close proximity to a hospital where they are performing procedures. Preschool/day care groups focus a great deal of effort on the number of roof tops and locating themselves on the “going to work” side of the street. These are all general search criteria comments. As discussed in week three, make sure to spend plenty of time establishing goals in planning meetings prior to searching for properties through the web or windshield…so that your commercial real estate broker can take a “rifle” approach in their search (versus shotgun).
#7 Site Plan – Once you find a solid location (on market or off), the next step is to make sure that a site plan is created which allows the tenant’s patrons to easily access (ingress/egress) and park in the facility. I know that these item sounds rather “basic”. That being said…have you ever been to a restaurant site that is difficult to get in and out of (ingress/egress)…or in a physician parking lot where there isn’t enough parking? My opinion is that people are so busy in their daily grind that regardless of how tasty the food or how great the health care provider’s services are…many patrons are already looking for a new place to go after a bad access or parking experience.
Next Steps—-Please understand that every commercial real estate transaction is different so it is important that you hire a seasoned commercial real estate broker to help you navigate through the transaction. Although the commercial land acquisition topics mentioned above are common to many commercial real estate transactions, I am regularly involved in deals that require completely different criteria. I look forward to following up with you next week to go over Single User Development.
Stay tuned for Next Week’s Article…..Commercial Real Estate Buyer’s Check List – Single User Development
See below for helpful Commercial Real Estate links:
Contact a Commercial Real Estate Expert today:
Luke LeGrand, ePRO 210-843-5853