All Forum Posts by: Scott Choppin

The next step in the development process is to research and assess zoning for a particular project. 

We'll do this in two posts. First post will show you how to search for what zone your site is in for a particular city or county. The next post after that will show you how to research what you can actually build once you know what zone your site is in.

Zoning is one of the more obscure aspects of the development process, but in our experience, once you acquire significant strategic knowledge and create practices around this research and identification process, the value and marginal utility to be generated can be very significant. 

You can hire an architect to do this zoning research for you, but as a developer a big part of your "value add" is to identify strategically what areas have the zoning that you need, or where you found a site and the zoning works for what you want to build. An architect is best left to refine the research and the minute details of the zoning code, after you as the developer have found the site, identified the zoning, done the math to determine that the zoning density, site area, and unit count that work for your type of development project. Plus, you can do this much quicker then they can and you keep your predevelopment costs down by doing the work yourself. Ultimately, as a deal maker, you are in the best position to move first/move fast to find sites and and make initial zoning assessments that work for you as a developer. 

Once you have identified a piece of land that is in the neighborhood that you are focused on, or found a site, you then want to research the zoning of the property. 

Now, you may say: shouldn't you check zoning first and they find a site you want in that area? The answer is yes, but it can be done either way: find the zoning then the site, or find the site check the zoning. 

If you are willing to farm an area with the correct zoning that's great, but in our experience with market ups and downs that are always part of our thinking and action as a developer, we want to focus on sites that are ready to transact. Maybe you find them on Zillow, or Loopnet, or through your networks of help - brokers, bird dogs, wholesalers, etc. Either way, you want to be able to work on projects and land sites that can move forward with expediency. Either of these methods works, you just need to keep time to market in mind as you make this decision for yourself.

You have identified your site, now you want to check the zoning:

1. Find out what city it's located in. Be very careful to use mapping systems that have the correct data for what city or municipality the site is located in. Google Maps does not suffice for this, as a mailing address, or Gmap address may name a specific city, but it's jurisdictionally in another city or county. 

Example:

This says city of Los Angeles, but it's really in the unincorporated county of Los Angeles. 

This difference is critical, as all zoning regulations are specific to the city or county that your site is in, and every city's zoning codes are different. As well, the time to process entitlements (project approvals related to zoning and land use) may be significantly different. In this case, the county of Los Angles is notorious for being slow.

You can start with GMap search, then as part of your zoning check, you'll identify where the site in the city you have identified or selected.

2. Next, as you've identified the city or county that you believe the site is located in, you need to check the zoning (and by default if the site is in that actual city)

There are two main ways to do this:

1. Google search for this term "city of xxxxx zoning map". So for this example we'll use a random city in Orange County - the city of Stanton. Do the Google search and you will get this:

Here you'll see the city website, with a link to "General Plan-Land Use" where it lists in small print link text "Zoning Maps". Click on that and your see this:

Click on the link that says "Official Zoning Map" and you'll then see this:

Click on the image for link to actual zoning map

Then search for your site on this map. You'll have to cross reference streets named on the map and then find your site. The best way is to find the nearest major intersection actually listed on the map, then your street, then the outline of your site. It's tricky but can be done. If you determine that your site IS NOT on this map, then you need to move to the city that covers your site. In the sample map, you can see that they identify adjacent cites on the map, although not all zoning maps do this. Once you have determined that your site is on this map then you can move on to the next step.

Next, see what color the map is where your site is located and then look at the legend on the map to identify the zone your site is in. Let's pick the dark gold color for example purposes and you'll get "High Density Residential". This is your zoning designation for the site.

2. For larger cities or counties, some cities have GIS (Geographic Information Systems) websites or web portals. In the case of the county of Los Angeles it's called "Z-Net". In this case, you go to the website, and you'll usually see a search box where you can search by site address or Assessor Parcel Number and this brings up information on the site including the zoning. 

3. You can call the city or county planning department and ask them what zone your site is in. In our experience, and in bigger cities, the planners almost never answer the phone. In smaller cities a phone call may work, or better yet, an in person "over the counter" visit to check zoning. 

Sometime email works, but in any case, it's too slow for us. We want to be moving with velocity and be making assessments of sites rapidly. Both to be reviewing and assessing lots of site everyday, or a site may come on the market and you need to make assessments rapidly because your competitors are also looking at the site.

Next post will cover how to research what you can actually build (or not) given the zoning for your site.

Thanks.

@Jenny W. I appreciate the kinds words, my objective is to be a powerful offer of help. Glad to have you here. Thanks!!

Hi @Benjamin K.

I would be happy to help guide you at a higher level, and then get into more detail if needed. 

The way to approach this process is as follows (Edit: I see you have previous experience from your later post, use below as you need and if has value for you).

For now, we'll assume that your zoning is in place and works for your design.

1. Hire an architect to create your full set of CD's (Construction Drawings), with the component plan sections as follows: Architectural, Mechanical, Electrical, Plumbing, Structural, and (sometimes) Civil Engineering. 

2. Inside your plan in the notes in various sections, or in a separate specifications book ("spec book"), you would (or your architect) list the various materials, paint, carpet, countertops, flooring, appliances, etc that you want the contractors to bid. You don't have to do a separate book. On smaller projects, normally the specs are integrated into the plans. Sometimes, when a developer knows what they want they don't have any specs, just the drawings to build, they supply the materials specs to the contractors separately, or sometime not at all when a contractor has worked with you a lot, they know how to bid it already.

3. Submit your plans and specs to general contractors to give you a bid, and tell them to bid "per plan and specs" so that when you receive bids, you are requiring them to bid the same package of plans/specs as everyone else. 

If you don't have construction experience I would stay with using GC's. It will have a higher cost, but will allow you to observe an expert in action, see how they choose and manage subcontractors, and how the process moves along. Just make sure you pick the right GC, use your trusted network for referrals, choose a GC that has done your type of project before, check references including active build projects, and go see active build sites (look for clean, well managed site conditions). Do a few of those, and you can they start to think about managing the process directly using subs. My 34 years of experience is this: use a GC, free up your time to pursue more capital and more deals to work on. That's where the real value in the real estate development process is, not in the physical build out. You can hire folks to do that while you work on deals.

Hope that helps. I am an offer of help.

Thanks.

@Doug Woodville Happy to be an offer of help. Let me know if you have any questions or guidance you might need on future deals. I have family in Los Gatos, Campbell, and the City. Get up there often. Talk soon and thanks.

Hi @James Watts @Jason Weible @Simmy Ahluwalia and other folks, it appears that @Mark Robinson is not serious about investing in deals per his claim in the OP. He has called for investment opportunities in this post and confirmed to me and others here to send him deals as of 4 days ago. Then last night I get this message below. While Mark wrote a pleasant email, his actions are entirely different from his words. I suggest to not engage further. Thanks.

Hi Everyone:

So far, we have covered:

Basic Project Information and Physical Design Characteristics

Site Selection and Design/Project Programming 

Next we'll cover (over several real time posts, in roughly working order of the actual development process)

Zoning

Project underwriting - proforma analysis and apartment financial return basics

Land contracts - structures and strategies

Due diligence process and risk assessment

Construction plan production process - working with consultants, architects, engineers, and disucssion about project specifications

Plan check and permitting process

Build out - guidance on working with general contractors and subcontractors

Build out - real time photo essay of build out process

Lease up and operations

Sale upon completion and demonstration of returns generated

All real estate development projects will generally work through this same process, no matter the project type.

My objective is to provide a framework that anyone can work from in the development process. Think of this as a fundamental guide, applicable to any project, at any time, anywhere in world. It is fundamental because all real estate development projects work this way, and only the specifics change given time, location, project type, developer type, etc.

Let me know if you see anything that is missing for you and I'll do my best to add in as applicable.

Zoning covered in the next post.

@David Benton

Regarding the investment return methodologies to use, we will say it depends heavily on what the investors wants to see. 

We typically use IRR with our institutional level investors. We find IRR works better when the returns may be generated over multi-year periods and it's what the institutions and more sophisticated investors are used to and want to see.

We do have some high net worth individuals who want to see Cash on Cash or simple ROI calcs.

We don't see ARR utilized at all on land deals.

Thanks.

Hi @David Benton

Our company, Urban Pacific, is both a developer of land projects sold with entitlements/mapping, as well as, a builder/developer of projects. I spent 4 years early in my career working for Kaufman and Broad (now KB Home), and have been directly involved in land acquisition my entire career (now going on 34 years). From the other responses, I see that folks have opinions about your project type and/or market. I am after conveying fundamental principals that can help you underwrite this type of deal (and other similar types) in any market anywhere at anytime. 

A few definitions to know in this domain of land development:

Raw or unfinished lot cost = raw land prices divided by number of lots derived from land planning actions 

Finish lot cost = the cost of the land, development impact fees related to land, and common infrastructure (i.e. streets, sidewalks, parks, schools, etc)

Residual land value (RLV) = analysis of home prices less all cost to complete and what remains is what a builder can pay for land. This is the residual or remainder of the revenue stream available to pay for land.

In many markets, most homebuilders will focus on the finished lot cost. Almost all builders, and certainly the nationals (KB, Lennar, Beazer, Toll, etc.) will always want to buy lots based on finished lots costs. Others will use RLV, but in this post, you have the formula, so whatever method they use, you (or your broker) can do the math for yourself

So, the general formula would be

Sales price of home - (minus)

Build cost of home, including hard costs and permit fees -

Profit (can range anywhere from 3% to 15% depending on what builder, larger/nationals will usually have lower profit margins that they make up with volume) - 

Finishing costs of lot (per costs above) =

Residual land value (RLV) or raw land/raw lot costs

Now a few questions/comments/rules of thumb to use:

1. Some builders will do the lot finishing (install streets, etc) some will not, local regional preference. 

Find this out by calling land acquisition person at local/regional builders OR talk with land brokers who sell to builders. If they want to buy finished lots only, you would need to finance/build the infrastructure. 

My opinion: do the least amount of physical work possible (leave that to others with that expertise), hire good land planner/architect/civil engineer team and you do the design/land planning (find out what lot size is best from builder/brokers), get the subdivision map approved (that's the document approved by local city/municipality that approves the single lot be divided into many smaller lots), sell the land+map to builder. Our company has generated more profits doing this land development process/land entitlement process than almost any other type of development.

2. Only use engineers/architects/brokers etc. who have actual experience with single family lot development, you don't want to waste time/energy/money where others learn how to do it on your dime, you want them to tell you how it's done. More costly, but infinitely faster/more competent. 

Speed of execution = more profits in the development business.

3. Rule of thumb (in CA this works) residual land cost should be 20-25% of sales of home cost (on a per unit basis). This varies somewhat depending on scope and cost of finishing the lot.

4. Lean heavily on your land broker, they will have the best knowledge of the markets, they know the builders, they know what the builders will pay per lot, and what their appetite is for new lots. Again, work only with brokers that have demonstrated success in selling land to builders, and do so regularly. Otherwise, you are wasting your time. While it does have higher cost, you don't want to try and go direct to the builder because they will do all they can to manipulate you as the land seller, where the broker can call BS on moves the builder land acq. guys make, and guide you on all the details. A good broker knows these lot pricing/lot finishing and residual land values cold, if they don't: move on.

There are many structures available for phased take downs (for you or the builder), and/or long term escrows/option agreements that are outside the scope of this answer. 

Feel free to reach out David, I am an offer of help in this domain.

Thanks. 

@Mark Robinson Sending you an email with information by tomorrow EOB. Thanks!!

@Nicolas Saavedra 

Agree with @Christine Kankowski, HOA approval is critical (if HOA). Be aware of HOA design standards, in addition to allowing SFR vs. Triplex or not. HOA boards love to spend lots of time picking paint colors and reviewing plans for adherence to design pallets, and they tend to be slow, which is always the enemy of builders/developers.

Also:

1. check city/municipality zoning for your parcels and the surrounding parcels, make sure triplex (attached residential) is allowed. 

2. research should include investigation of front, rear, and side setback, units per area of land (i.e. one unit for every xxxx s.f. of land), and how many units per parcel (sometimes zones only allow x units per legal parcel), and parking requirements (with multiple units you may need to provide guest spaces). 

3. keep in mind when you go to sell how attractive the units are to potential buyers. Generally, our experience is that detached is always preferable to attached when buyers are surveyed. Everyone likes to NOT have a neighbor with a common wall if they have a choice. 

I am an offer of help if needed. Thanks.