Acquisition, Entitlement, and Development – A Brief Overview
At Terramoor we specialize in the acquisition, entitlement, and development business. These can be foreign terms to those not intimately involved in the real estate development business. So this blog post is devoted to simplifying the process of what it means to acquire, entitle, and develop land.
Acquisition is exactly what it sounds like—to acquire land. Being able to locate and identify the right parcel of land is critical to the success of any development. The process requires sifting through market data and analyzing the metrics to make sure the purchase price and development cost leave room for profit. The property should also be walked to recognize geographical or other potential hazards that are not evident on even the most detailed of maps. The land contract should be negotiated by a profession that is familiar with industry norms in the area. Then a due diligence team of consultants works together to ensure the property is suitable for its intended use. Often a property will not have the zoning needed to develop the desired property. Therefore, understanding the do’s and don’ts within the local community are essential to the due diligence phase as well.
Entitlements are the most underappreciated, and often the most difficult part of the development process. Usually, entitlements are lumped in with the due diligence process, but there is a clear distinction. Due diligence exists to determine if the site meets your development criteria. Such things as clean title, procuring a survey, and obtaining a geotechnical investigation are typical due diligence items. Entitlements are legal rights, or vested rights, conveyed by approvals from governmental entities to develop a property for a certain use, intensity, building type, or building placement. Entitlements raise property values. Common entitlements include things like zoning, preliminary plat approval, US Army Corp. of Engineers (USACE) permits, state and regional permits (i.e. department of transportation for ingress/egress, state environmental agencies for stormwater detention), local permits (i.e. land disturbance permits). Simply put, the project cannot move forward without the proper entitlements. Entitlements take time, anywhere from six to twelve months. It’s crucial to consider the entitlement period when negotiating the land contract and analyzing financial needs.
Once the land is acquired and entitled, it is ready for horizontal infrastructure. Selecting the right contractor is the most important aspect of development. The wrong contractor can lead to excessive change orders, improper management of the day-to-day activities, and unnecessary delays which quickly diminish your profits.
Development often looks like dirt piles haphazardly being pushed around. When in reality, it is a carefully orchestrated sequence of steps. First, the land must be cleared. Local ordinances often restrict burning and may require the cleared material to be hauled from the site during summer months. Second, the land must be graded to the development’s specifications. While clearing land in the winter may cut hauling fees, mass grading in the winter rains brings its own muddy challenges. Next, wet utilities such as sanitary sewer, storm sewer, and water, are installed in the order of their depth beneath the surface of the ground. In today’s market it's important to take into account lead times for the materials necessary to install utilities. Dry utilities, such as power and natural gas, come next followed
by curb and gutter and road paving. Once this is completed, the property is ready for subdivision into individual lots.
Of course, this article is intended as just a general overview of the acquisition, entitlement, and development process. Circumstances beyond the scope of this article can affect each part of the land development process and each development is managed depending on its individual needs.
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