Commercial development - Due Dilligence key-careabouts for a Land
In my previous post under a similar heading I talked about my main learnings from a land deal that I'm working to close. In that article I focussed on what to be mindful of BEFORE signing the contract. In this post, I'll talk about key care-abouts and tasks once you sign the contract and are into the due dilligence period:
1. Survey - Get your own survey done ASAP even if you have seller's version - generally you'd need an ALTA survey for a commercial deal. Although not a legal requirement, it'd likely be required by your lender. It does cost almost twice as much as boundary survey but has a lot more detail than a plain boundary agreement. You also cannot complete your Title review until you have a survey. Your attorny will ask for it. Did I mention getting an attorney to help you through the due-dilligence - it's money well spent !
2. Phase 1 environmental - Get this done in parallel to survey. You may need a Phase 2 as well in case Phase 1 finds potential concerns (say, issues due to a nearby Gas station). Phase 1 is an initial assessment, more focussed on document research while Phase 2 is where they actually take soil samples etc.
3. Title documents and review - Engage with competent attorney and get started on title document review which has a time limit. You'd very likely have "objections" which you'd (and your counsel) need to work through with the Title company and seller. This is a critical step - do not take it lightly. I found a lot of issues such as concerns with utility capacity, storm drain easements etc. that we eventually resolved and turned out to be minor but could have been show-stoppers.
4. Engage architect/civil engineering - If you are buying land to start development and not just land-banking, I'd engage with an architect immediately. You'd need to start working through a preliminary site-plan to validate your assumptions about the building area, parking ratio, drive-thrus etc. Yes, I'd do it during the due-dilligence. Also, your architect will work with the survey you just completed in #1 and ensure there are no issues in building a structure and meeting parking requirements etc. You may need to sign a contract which is fine since you won't get charged for detailed planning/construction work unless the construction actually starts. If you don't end up closing the deal, you may just need to pay for site-plan and other minor expenses.
5. Engage with a civil engineer - Have atleast prelminary review with civil engineer on all the utility easements.
6. Engage with a Leasing agent - Depending on your timeline for construction, I'd engage with a good leasing agent as well who knows the area. For a shopping center, banks would require center to be atleast 50% pre-leased before they give you construction loan. Also, the leasing agent can bring in his/her experience into the site-plan discussions with the architect.
More later! Thoughts and suggestions are always welcome.