CRE Development Mistakes - Real Estate Site Selection

Summary

In this video, Matt Marsh, founder of Martian Partners, explores the critical process of real estate development site selection. He highlights common mistakes developers make, including chasing trends, neglecting opportunity costs, inadequate due diligence, and lacking flexibility. Marsh emphasizes the importance of evaluating both external factors like zoning and demographics, and site-specific considerations such as environmental risks and utilities. By sharing lessons from his own experiences, he provides actionable insights to help business owners and investors make informed decisions, mitigate risks, and successfully transform their real estate projects for long-term growth.

Takeaways

• 🏗️ Real estate development site selection is the process of finding and choosing the right plot of land for a development project, considering both external and site-specific factors.
• 📊 External factors like zoning, demographic trends, municipal ordinances, and growth patterns can significantly impact the viability of a development site.
• 🌱 Site-specific factors such as environmental conditions, required site work, utilities, and the property's highest and best use must be carefully evaluated.
• 💡 Not all land is suitable for every type of development; for example, farmland may serve different purposes than an urban infill site.
• ⚠️ Common mistakes in site selection include following short-term trends instead of long-term market demands, which can lead to failed projects.
• 💸 Failing to weigh opportunity costs, like future expansion, location impact on talent, and alternative uses for the property, can hinder long-term business growth.
• 🔍 Inadequate site due diligence, including thorough assessments of topography, utilities, environmental risks, zoning, and incentives, can increase costs and risk project failure.
• 🏃‍♂️ A lack of flexibility and rigid adherence to a preconceived ideal site can limit success; adaptability is crucial in navigating site-specific challenges.
• 📈 Successful developers remain agile, considering local market variations and being prepared to pivot when facing setbacks or unexpected issues.
• 🛠️ To avoid mistakes, developers should work with experienced civil engineers and familiarize themselves with comprehensive site selection and development processes.
• 🎯 Ultimately, carefully analyzing all variables, planning for opportunity costs, and remaining adaptable are key strategies for successful real estate development projects.

Q & A

What is real estate development site selection?

Real estate development site selection is the process of finding and choosing a plot of land to pursue a development project. It involves evaluating both external and site-specific factors to determine the viability of a property.

What are some external factors that impact site selection?

External factors include zoning restrictions, demographic trends, municipal ordinances, and the growth trajectory of an area. These factors influence whether a site is suitable for a particular type of development.

What site-specific factors should developers consider?

Site-specific factors include environmental considerations, necessary site work, access to utilities, and the property's highest and best use. These determine how well the land can accommodate a specific project.

Why is it a mistake to become a 'prisoner of the moment' in development?

Developers may chase short-term trends without considering long-term demand, which can lead to projects that are unsustainable. This approach risks misaligned investments if market conditions change.

How did COVID-19 illustrate the importance of understanding long-term market trends?

COVID-19 accelerated remote work, which reduced demand for office space. Developers who focused on short-term recovery trends overlooked the long-term shift toward remote work, affecting their investments in office and hospitality real estate.

What is meant by 'weighing opportunity costs' during site selection?

It involves considering all alternatives and their potential benefits or drawbacks. For example, when choosing a site, developers must assess how location, building size, and future expansion opportunities impact long-term business growth and profitability.

Why is site due diligence critical before committing to a project?

Thorough site due diligence identifies potential risks like topography challenges, environmental issues, zoning restrictions, utility access, and municipal requirements. Addressing these early prevents increased costs and project delays.

What mistakes can occur from inadequate site due diligence?

Developers may face unexpected development costs, improperly evaluate property value, or encounter roadblocks that can jeopardize the project, including legal, environmental, or regulatory hurdles.

Why is flexibility important in the development process?

Real estate development is unpredictable, and rigid adherence to a specific plan can cause frustration. Developers who remain flexible and adapt to setbacks or unexpected conditions are more likely to succeed.

What does Matt Marsh mean when he says 'the perfect site doesn't exist'?

Every available site has some limitations or challenges ('some hair on it'). Successful developers focus on mitigating these issues rather than expecting an ideal property.

How can a developer assess the potential success of a site?

By evaluating both external and site-specific factors, weighing opportunity costs, conducting comprehensive due diligence, and maintaining flexibility to adapt plans as needed.

What practical steps does Matt Marsh recommend for developers?

He suggests finding a skilled civil engineer, familiarizing oneself with site selection and development processes, conducting thorough due diligence, and considering long-term market trends and site-specific challenges.