On average, how much are you spending on these due dilegence items...e.g are you finding that you have to spend say $5k to find out if a project its worth pursuing further? Thanks again :)
Originally posted by
@Scott Choppin:
Now on to to the due diligence process:
On the Cedar Avenue site we did most of the following related to due diligence:
1. Preliminary title report - review and research of the title report and back up documents looking for issues that may cause problems with what we want to build on our site. These would be things like encroachments, where a fence or some other physical item is crossing over the property line (PL) from an adjacent property. We also look for easements that others hold that effect our property. These would be adjacent property owners that have easements for vehicular access across our site, or they could be an easement that the utility company has for the water line, sewer line, or electrical line. We also look for encumbrances, like loans or other financial instruments, that are recorded against our property.
2. Soils engineering - this is where we hire a soils engineer to prepare a study that outline the physical characteristics of the soil on our site, relate to how we must design our foundation system to work correctly in our build process. This would also identify water table depth, soil liquefaction, soil expansivity (soil that expands or shrinks), or soil chemical content. Your soils report is used by your structural engineer in their design, as well as, you grading contractor when you are building the project.
3. Environmental Phase I - this is research and or physical testing to determine if there are any environmental issues on hour site. What we mean by environmental issues would be chemical spills, soil impact, or underground tanks from former property uses such as gas stations, industrial uses like chrome plating facilities, or other uses like dry cleaning plants. This research is done by an environmental company utilizing published databases, physical inspection, and property owner interviews.
4. Fee study - a comprehensive research effort to identify all development impact and building permit plan check and permit fees. See older fee study from a past project of our attached here:
5. Market study - an internal or external report prepared to evaluate rental rates for your project, to be utilized in your early underwriting proforma.
6. Comparable study - an internal or external report of recent (market dependent timing) of project sales and land sales. You may also prepare comparable for operating expenses for your rental project at this time.
7. Architect feasibility study - a basic plan to make sure that your product type actually works relative to your underwriting.
8. Financing study - research to determine that your project is financeable. This would mean have meeting with equity and debt provider to determine level of interest. Preferably you can obtain commitment letters for these, although many financial institutions are hesitant to give any early commitment. You would generally be looking for feedback on the construction financing, leaving the permanent period debt until later (most perm lenders won't commit so far ahead given you still have to design, entitle, prepare CD's, build, and lease the project).
9. Any thing else that you determine needs a grounded assessment for your project to be successful.
Many companies utilize due diligence checklists prepared and updated over the time that they are working on project so that junior staff members can utilize these steps to prepare a complete and comprehensive due diligence report. Generally, you would want to be satisfied with your due diligence report before you have to pass hard money through on the escrow for your land purchase.
