Can I Develop Land Affordably?
There are no money trees out there!
The definition of affordable is relative to each person’s economic condition. As I’ve said before, when it comes to real estate we buy and sell at the economic level we are at. A $40,000 purchase deal on vacant land is peanuts to one person and a major life decision to another. In the end, each real estate deal is almost always a high-tension event for each of us, no matter the price tag.
Once I have acquired land and finished a project I’ve notice that my average large-lot project cost-to-completion winds up being broadly about 1/3 acquisition and holding, 1/3 entitlement and 1/3 construction. It doesn’t seem to matter what the lot yield is. I once did 2 short plats in the Pacific Northwest on the low yield end; also a project in Florida with just over 800 lots and a $16+ million budget. They all seem to average out about the same. Of course every land development project varies and yours most certainly will too.
Focus on affordability:
Using the same three general areas listed above, we’ll focus on ways to drive costs down while preserving quality. We’ll take a look at cost containment to keep the project affordable and ultimately profitable.
Affordability in acquisition
Affordability in entitlement
Affordability in construction
Affordability in acquisition:
Being a qualified buyer for land is a great feeling because you are the Big Shot. Somehow you have funding, or a way to get it and in the good ‘ole U.S.A. money = power. Good for you, but I would suggest being a humble big shot. The reason is that we can all get drunk on power and overreach during acquisition. You don’t want to be the guy with more leftover testosterone than money somewhere down the road.
Keep it real:
I can’t remember a land development project that I didn’t underestimate in some way. I’ve noticed over the years that project size can be a factor in miscalculation. The bigger the project the more complicated it can be to project variables, therefore more easily misjudged. I wish when I started that my first projects were scaled more to my capabilities at the time. That way affordability might not have been as adversely affected by my limited capability to strictly manage costs. I didn’t know my limits, except after reaching them.
You might avoid this by acquiring and using certain knowledge in advance.
Know your own limits:
I know of many examples of overpaying for dirt. As a big shot with power, know that your power can lead to a surge in optimism, which in turn can lead to overreach. I would encourage sticking to the acquisition budget and if you don’t have one, why not? I also suggest in-depth investigation to include not only an inspection of the real property, but also one that is sometimes glossed over due to optimism - the projected cost to take the land from it’s raw state to the finish line… all this to be done before permanently parting with acquisition funds.
Examples of acquisition watch outs:
Understanding what is actually useable on any piece of land under consideration is crucial for affordability. Equally important is how much it is going to cost to bring the project to its highest and best use. Here are a few examples:
Roads - How many liner feet of road is estimated?
Topography - Are steep slopes involved?
Access - Are the ingress and egress points clear?
Offsite - Will off-site improvements be required?
Environmental - What environmentally sensitive areas are involved?
Utilities - where are they and how much to tie in?
….these are just 6 examples of many.
For more details see: Initial Checklist for Land Purchase — Land Development Realities
Engineers in acquisition:
Engineers are costly, but not as costly as making a mistake in buying land. Some of us may not know what questions to ask or how to evaluate what we know from our research. My opinion is that this is a great time to have your engineer take a look at the property during the inspection period, before the earnest money goes hard. When I do this I rarely get any absolute answers, but I sure do get insight as to the possibility of certain problems. Like a lot of things if life, a qualified third-party opinion can be invaluable!
Entitlement can burn money!
Entitlement affordability:
Projects submitted and under review:
Entitlement is one place where the speculative nature of land development can really show up to negatively affect affordability. I described in a recent post a relatively small example of the time I had to unexpectedly use an archeologist for a project under review.
You can read about it here: Why Would I Need an Archaeologist in Land Development? — Land Development Realities .
It illustrates just one of many circumstances where unplanned costs affected affordability. Emerging in the entitlement review process, I wound up killing 2 months and several thousand dollars to get an archaeological study on a 1,113 acre project.
Examples of how I manage affordability during entitlement:
Pre-submittal meetings - review the submittal package with the key consultants. Goal is to finalize design efficiency and cost saving measures.
Review meetings - while under review, take planning department feedback and adjust to find cost saving alternatives for compliance.
Unplanned adjustments - it’s almost inevitable that something unplanned will emerge. Negotiate to mitigate the cost of adjustments in money and time.
Even seasoned land developers sometimes take a wait and see approach after submittal. This is because once the plat is submitted to the county it is often perceived to be set in stone while under review. There is some amount of truth to this, but it does not mean efficiency adjustments can’t be made.
I had a project in Florida where I requested Public Works to meet myself and my engineer for an on-site meeting. The Public Works guy was unexpectedly helpful in identifying a clever way to adjust the sewer design that was currently under review. His suggestion helped us create a more efficient underground installation pathway. My engineer quickly adjusted the design and we ultimately saved money on trenching and costly materials.
The main point is that efficiency steps can be taken during project review to cut costs and avoid time delays. If I hadn’t proactively requested the on-site meeting, we might not have found this key opportunity to enhance project affordability. After all, neither myself or my engineer thought if it!
No matter the stage of the project, always look for opportunities to save a dime!
Affordability in Construction:
When the plat is approved, so is the construction plan. Before that, request for proposals (RFP’s) should have been sent out well in advance. I get at least three bids for each construction requirement unless there is a really good reason not to.
It’s always tempting to use the outfit that you already know and trust, i.e., the guys that did a great job on a prior project. I avoid taking this easy way out in the interest of affordability. I owe it to the investors to make sure that the most economical option is used, as long as quality doesn’t suffer. Here are a few of many things I do to keep construction costs in-check and affordable:
Negotiate bids received from RFP’s.
Sequence construction to avoid delays between phases.
Keep each phase of construction on track to avoid time delays on the upcoming phases.
Schedule construction to avoid taking machines in and out of the project.
Coordinate contractors so that construction is done simultaneously when possible.
I worked alongside a guy once that thought project management was best done from behind a desk. It’s true that land developers have a tendency to spend just a “tad bit” too much time fooling around on their dirt (including me), but I firmly believe that construction is one time to be consistently on-site. Hands on resolution can be the quick cure to costly problems and something always seems to come up when moving dirt.
The value of on-site presence:
There can be many dangerous situations with heavy equipment. I haven’t been around too many that were immanently life threatening, but there was one time when I was cracking a crapload of limestone that comes very close. It started out like one of the quarry scenes in the Flintstones cartoon when Fred is at work. Besides the cartoon, I’ve only seen it done one other time - but this time was in real life and I was doing it.
In the cartoon “at work” scene, Fred Flintstone sits atop his brontosaurus crane in the quarry. He’s cranking up a boulder tied to a hoist rope and dropping it from the upper sheave (the brontosaurus’s head) to crack rock for Mr. Slate. My project did the same thing, except without the brontosaurus and boulder.
I was breaking up massive amounts of limestone to create 3 lakes that would serve the dual purpose of water amenities (with lighted fountains for heavens sake) and more importantly, to serve as retention ponds for project irrigation. These were the third and fourth phases of 5,300 acres and there were hundreds of existing residents from the earlier phases - 1 and 2.
The community center, bike paths and sidewalks were within 30 yards of where the crew was dropping a 3 ton pointed weight that was shaped exactly like a plum bob. They would crank it up about 40 ft and when the “all clear“ horn sounded drop it from the boom apex of a crane that was about the size of Fred’s brontosaurus. It made a satisfying, but menacing, “crack/thud” on impact. The process was lift / drop / repeat - as low-tech as anything I’ve ever done in land development. This was the only way to do it since we couldn’t use dynamite because of the existing community residents, plus a boatload of laws pertaining to the use of construction explosives!
I made it on-site about an hour after sunrise on Day 1 and they were already at it. I parked in the community center lot and walked along the sidewalk for a look see. The early morning sun rays were laterally angled and just right to see shards of rock rocketing out to the sides every time the 6,000 pound weight hit home. With the parking lot, sidewalks and bike paths in clear and present danger I stopped the lunacy on the spot before any residents came out for a morning jog or whatever else.
With the crane crew top kick we solved the problem by skirting the impact site. This shielded the fly away rock bullets created with each impact and we were good. I guess that’s just one excellent example of why you need to be on-site during construction! Beyond that, safety can affect human life and also developer liability. If someone is injured or killed from our stupidity and carelessness it is a preventable tragedy.
As it relates to liability, I doubt many of us have a budget line to cover damages awarded from negligence, so let’s keep our heads on straight and our resulting project affordability the same. Good luck!
Contact me at: ldr@landdevelopmentrealities.com
Blog photos courtesy of Unsplash.com - Micheile Henderson, JP Valery and Thought Catalog. Thank you!
