Commercial development - Due Dilligence key-careabouts for a Land

[Amit Dhawan]

In my previous post under a similar heading I talked about my main learnings from a land deal that I'm working to close. In that article I focussed on what to be mindful of BEFORE signing the contract. In this post, I'll talk about key care-abouts and tasks once you sign the contract and are into the due dilligence period:

1. Survey - Get your own survey done ASAP even if you have seller's version - generally you'd need an ALTA survey for a commercial deal. Although not a legal requirement, it'd likely be required by your lender. It does cost almost twice as much as boundary survey but has a lot more detail than a plain boundary agreement. You also cannot complete your Title review until you have a survey. Your attorny will ask for it. Did I mention getting an attorney to help you through the due-dilligence - it's money well spent !

2. Phase 1 environmental - Get this done in parallel to survey. You may need a Phase 2 as well in case Phase 1 finds potential concerns (say, issues due to a nearby Gas station). Phase 1 is an initial assessment, more focussed on document research while Phase 2 is where they actually take soil samples etc. 

3. Title documents and review - Engage with competent attorney and get started on title document review which has a time limit. You'd very likely have "objections" which you'd (and your counsel) need to work through with the Title company and seller. This is a critical step  - do not take it lightly. I found a lot of issues such as concerns with utility capacity, storm drain easements etc. that we eventually resolved and turned out to be minor but could have been show-stoppers.

4. Engage architect/civil engineering - If you are buying land to start development and not just land-banking, I'd engage with an architect immediately. You'd need to start working through a preliminary site-plan to validate your assumptions about the building area, parking ratio, drive-thrus etc. Yes, I'd do it during the due-dilligence. Also, your architect will work with the survey you just completed in #1 and ensure there are no issues in building a structure and meeting parking requirements etc. You may need to sign a contract which is fine since you won't get charged for detailed planning/construction work unless the construction actually starts. If you don't end up closing the deal, you may just need to pay for site-plan and other minor expenses.

5. Engage with a civil engineer - Have atleast prelminary review with civil engineer on all the utility easements. 

6. Engage with a Leasing agent - Depending on your timeline for construction, I'd engage with a good leasing agent as well who knows the area. For a shopping center, banks would require center to be atleast 50% pre-leased before they give you construction loan. Also, the leasing agent can bring in his/her experience into the site-plan discussions with the architect.

More later! Thoughts and suggestions are always welcome.

[Bill Snyder]

In addition to the Phase I and the ALTA, it is a good idea to also get a Zoning Compliance Report. Depending on your team, I've seen the ALTA provider also offer that, you can coordinate with your architects, or you can work directly with the municipality.

It is particularly helpful if you are making renovations or development changes to an existing structure where zoning regulations may have changed from the existing structure to the present alterations.