J. Scott Hathaway, PMP, Senior Associate, SSOE Group (2011 Directory)
While it may be difficult to detect, economic growth has returned. According to the Institute for Supply Management, the U.S. manufacturing sector grew for the 15th consecutive month in October. In addition, the U.S. Department of Commerce reported that retail sales grew by 1.2 percent in October, double what analysts had expected.
Barring unforeseen disaster, manufacturers, retailers, and other industries that need real estate to foster growth will likely put their site selection teams back out in the field soon - if they haven't already done so. Some of these teams will be under orders to find sites quickly and to compress development schedules, to ensure that revenue from new manufacturing lines or new retail stores begins to flow to the bottom line in time to buff up the corporate performance reported in a soon-to-arrive quarterly filing.
The Entitlement Process
While it is possible to speed some development tasks, it is also important for a development team to spend enough time on due diligence to avoid nasty surprises during the entitlement process.
That said, three entitlement issues - zoning, infrastructure, and design regulations, along with the respective costs and associated schedules - generally control the decision to recommend a site for development. A development team must examine these issues in enough depth to advise for or against a site acquisition. Once the team recommends an acquisition, relationships developed during the preliminary evaluation with zoning, code, and utility officials - as well as working concurrently on long-lead issues - can help to speed the entitlement process.
Importantly, it takes a local expert to vet the issues efficiently both before and after a site acquisition. That's because the requirements vary greatly from locality to locality. Local zoning regulations, neighborhood groups, city officials, and zoning board preferences all play a part in determining whether or not a project can go forward. Local building codes - often complicated by overlapping city, county, and state jurisdictions - can add prohibitive costs to construction. Likewise, projects that will strain local traffic and utility infrastructure may fall victim to required infrastructure spending.
Calling in the Experts
Relevant and useful due diligence requires that a local expert in zoning, building codes, and the state of the region's infrastructure vet property before it is acquired. Architectural and engineering firms with nationwide networks of local offices can offer such local expertise. Local representatives of these firms should have a role in every real estate development team.
A local consulting engineer, for instance, will likely already know about prohibitive zoning, code, and infrastructure risks connected to a piece of property. If not, then he or she will know whom to contact to develop a preliminary recommendation.
While commercial real estate brokers know what properties are available in properly zoned areas, the consultant engineer augments the design team's knowledge on signature building components that may be critical for brand recognition, costly infrastructure that will require upgrades, or unique design requirements that are encountered in a certain part of town. Also, the development professional can provide guidance and design alternatives - such as challenging flood plain design methodology or alternative building materials - that provide early identification or circumvent deal-breaking development hurdles.
Suitability of the Site
Further, a consulting engineer will be able to make a preliminary assessment of the suitability of the site for an owner's business. A manufacturing company will have goals tied to production volumes and downstream sales. Will that require three production shifts? Do local codes permit 24-hour operations? Does the manufacturing process use any hazardous materials? Can trucks follow a direct route to deliver those materials or will they have to follow an indirect route to avoid certain highways?
Another key preliminary judgment involving the nature of the business considers the size of the facility and the number of local jobs it will create. The economic value of a 750,000-square-foot manufacturing plant to a town or city may make it possible to overcome any preliminary deal-breakers involving zoning and infrastructure with concessions made by the jurisdiction.
If a prospective site survives the preliminary assessment, each of the three primary go/no-go issues must undergo closer scrutiny to enable an owner to assemble a reasonable budget request from senior executives or a board of directors.
The temptation to forge ahead with acquisition and permitting is difficult to resist. Senior executives may even be hurrying things along. Time and again, however, projects have stopped when the original budget request turns out to be too small and a second request is unable to be authorized. So it is important to get the development budget right the first time around by way of an adequate assessment of zoning and infrastructure issues related to each site under consideration.
Speeding Site Selection
In sum, a knowledgeable advocate can assess risks connected to individual sites and present those risks to an owner in a way that makes it possible to make an informed go/no-go business decision. The challenge is to assemble appropriate information to enable an intelligent comparison of several sites in a reasonable amount of time. Issues to consider include the cost and time required to entitle and develop the site.
If the decision is to go and timely approvals are paramount, it may be possible to speed the process by sequencing applications for permits properly, determining when to risk permit costs to move other tasks forward, and carrying out some tasks concurrently.
Sufficient up-front work can speed the process of selecting and entitling a single site for a manufacturing plant as well as a multi-store retail rollout. As consumer spending begins to rise, retailers will begin to announce significant new development campaigns.
A consulting engineering firm with local offices across the country can drive such a process by prioritizing lists of prospective sites for each market on the expansion list. The consultant can assess each site in terms of zoning, building codes, and infrastructure needs and rank each according to the risks and rewards it will bring to the entitlement process.
All Real Estate Is Local
As the saying goes, all real estate, like all politics, is local. County and city building departments regulate the entitlement process for construction projects, and they all do it differently. For example, Maryland localities are concerned about storm water runoff because it necessitates a multistate effort to clean up the Chesapeake Bay. California cities and counties have special seismic requirements that projects must satisfy during entitling. Jurisdictions up and down the Mississippi have regulations related to building in flood plains.
Jurisdictions must also provide safe and sufficient roads, power, and water for residents and businesses alike. As a result, entitling a site on one side of town may take less time than entitling a site on the other side of town; even projects within the same jurisdiction can vary due to unique area constraints and zoning districts.
Individuals and businesses take intense local interest in the construction projects being planned for their communities. In the end, entitling a project swiftly in a particular jurisdiction may not be possible. In the event that there are several hurdles, it's important for a developer to know that ahead of time. An experienced consulting engineer with a detailed knowledge of local zoning, building codes, and infrastructure issues will know. Likewise, if it is possible to push the envelope on an entitlement schedule, an experienced consulting engineer will know how to make it happen.