The fact-gathering process begins with your first contact with the land parcel and continues through the time you're involved with the property. Although you'll be collecting various types of information at different stages, the primary purpose of due diligence in the context of "developing" a property is to enable you to determine if the land development would be economically feasible.
The specific information that you will need about a parcel will depend on the land development scenario you want to do, the specific property, applicable laws or ordinances, the seller and other facts unique to the situation. However, as discussed in previous articles in this Land Development Values series, key issues include a rough estimate of the site yield, the improvement costs and the potential income you could realize from transforming the property. So those are the issues on which you should focus your efforts when you're starting your evaluation of land parcels.
Location: Utilities & Surrounding Area
You will need to find out if the parcel can be serviced by public utilities (especially sewer and water) because this has a direct impact on the potential yield of the site and the ultimate cost of improvements. In addition, zoning ordinances often require that public water and sewer be available in order for a parcel to be developed into certain uses or specify different densities based on public and private water and sewer. Correspondingly, you'll need to determine the locations of existing or proposed lines by reviewing mapping available at the offices of the municipality, governmental authority or private utility company. The presence of lines at or near the parcel is no guarantee that utility service is available. A moratorium on new connections could prevent the property from accessing existing lines, so you should also find out if utility permits are available and the cost of permit and tap-in fees.
Depending on your intended land development scenario, you might have to discard the parcel if it can not be serviced by public water and sewer. However, if that is not the case, then you will absolutely need to find out (with assistance from your engineer) if the soils and other geologic conditions on the property favor on-site sewage disposal systems and wells. In addition to making site yield more speculative, private utility service may add significantly to improvement costs.
To avoid the "noxious neighbor" trap (discussed in a previous article), you should investigate the properties in the area of the one you're pursuing. This means checking out the current zoning and getting details of any pending subdivision, use or development applications. Use common sense to define the scope of the area you investigate. The "impact zone" can extend beyond properties within walking distance where the existing use or proposed change could have a negative effect from a distance.
You do not have to be an engineer to collect some basic, preliminary information about the parcel's features, such as existing structures, topography, size, shape, road frontage, and whether it appears to have areas of wetlands and floodplain. Data and mapping relating to soils, wetlands, topography and floodplain are available from several sources on and off the Internet. Aerial photography can be quite useful in getting a sense of the parcel's boundaries and conditions on and off the site. If you get to the point of putting a parcel under contract, your engineer will assemble site-specific information, but your preliminary research should give you a general idea of the site's natural or man-made features that may present challenges to developing it.
In addition to researching the zoning of the parcel, you may want to get a copy of the current deed to see if there are any title title issues, such as easements and restrictive covenants. (You would, of course, have a full title search done during the feasibilities period of your purchase contract.) When you're at the municipal office, be sure to find out if the property has undergone use, subdivision or development proceedings in the past and if so, review the municipal files and plans submitted.
Finished Product Value
After you "develop" the parcel, you'll want to be able to sell it for a profit. Your buyers may be builders who will, in turn, sell the finished product to end users. Therefore, what you can get for the parcel in part depends on the ultimate value of that finished product (ie, building lots, residential new construction packages, or office and retail facilities). Where you contemplate a residential subdivision, you should identify the current and pending residential communities in the area, the builders involved, what the home sites are selling for and the rate at which they are selling. Also critical is the revalue of existing housing in the immediate area because this in a sense sets the bar for the sale prices of the new construction on the site. For office and retail uses, research rent rates obtained for comparable non-residential properties in the area. Where applicable, find out the sale prices of individual office or retail buildings and condo units.