The “Due Diligence” Period, Part I

by Geoffrey Butler, AIA

There is a period during the development process which is critical to the success of a project. This is the period between the decision to purchase a piece of property and the actual purchase. This period is called the “Due Diligence” period. During this period it is the buyer’s responsibility to exercise due diligence in investigating any and all issues which affect the proper development of the property to make sure that the property can be used for the purpose that it is purchased for.If everything checks out, the sale goes through. If not, the sale is off and the buyer and seller part ways. If this effort is not carefully pursued, the Developer could end up with a piece of property which can’t be developed as intended.

During this period, there is a long list of issues which need to be investigated in order for the Developer to make a final determination whether to purchase the property. Not everything will check out perfectly and the Developer must make a decision whether the factor which didn’t check out is a “deal breaker.” One item alone might not kill a deal. However, several small factors might add up to kill the deal.

It is during this due diligence period when the Architect can provide critical services that can ensure a successful project. Issues which must be addressed include:

  • Zoning – Can the property be developed with the intended uses? Is a rezoning required and is it possible? What limitations are in place in the Zoning ordinance regarding: intensity of use; height restrictions; ground coverage; parking requirements; building and parking setbacks; bufferyards; impervious surface ratios; greenspace requirements; noise, light and odor criteria? Is there a Site Plan Approval process with the local zoning authorities? How long does it take and what do they review? It is important to remove risk by making sure that any Site Plan Review process is completed prior to closing on the property.
  • Utilities – Are all utilities available? Who provides them? Are they City owned and regulated or private? Where are they? Are there extensions of any particular utility needed as part of this development? If so, what and how much will it cost? What are the access or impact fees that you will be subject to as a result of your development. Many communities are underwriting their infrastructure development costs through the imposition of “access and impact fees.” These fees can run in the six digits on restaurant and hotel projects and add directly to the first cost on a project.
  • Easements – what easements exist on the property and how do they affect the use of the property? Does the property require easements from adjacent properties for stormwater, access, sewer or other uses? Are they available?
  • Signage – Are signs allowed on the site? How many? What size? What height? What type?
  • Traffic – Does the site have access to the public streets? Do you have access to a signalized intersection? Can you get one for your site alone? Is your access to the road system limited? What are the long range plans for improvements to the roads in the area? Will your access be limited in the future by a planned median? Will the City require your development to provide off site improvements to the road system as a result of your traffic? Do they assess road impact fees similar to the utility impact fees?
  • Stormwater Drainage – Does the area have a regional drainage and detention plan? Is the site subject to on site detention? Is the site subject to flooding or other stormwater problems from upstream? Are easements required from downstream property owners for your drainage? At what cost? Will the City help secure them through condemnation if necessary?

Next week I will continue this discussion and the impact of hazardous wastes, soil investigation, site design, architectural control, and building permits on the due diligence period.