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Chapter 2 Land for Development Property Development ( 6 th Edition)

Chapter 2 Land for Development Property Development ( 6 th Edition) Publisher : Routledge www.routledge.com Authors : Professor R.G . Reed and Dr S . Sims. 2.1 INTRODUCTION. The essential element in every property development is a geographical location .

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Chapter 2 Land for Development Property Development ( 6 th Edition)

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  1. Chapter 2 Land for Development Property Development(6th Edition) Publisher: Routledgewww.routledge.com Authors: Professor R.G. Reed and Dr S. Sims

  2. 2.1 INTRODUCTION • The essential element in every property development is a geographical location. • The selection of a site fundamentally affects the nature and success of a development. • Land is unique and every site has its own characteristics. • Site identification and acquisition can be a very long, frustrating and unpredictable process as there are many factors, some outside the developer’s control, which affect the successful acquisition of a viable site.

  3. 2.2 IDENTIFICATION OF DEVELOPMENT SITE • Confirm the search parameters by defining the aims, nature and geographical area of search. The overall strategy and aims of the development company will form the basis for the identification of sites and potential development opportunities. • The availability of resources such as the amount of finance they can obtain, skilled workforce or materials will also be a major consideration. • The geographical area of search for sites depends on a number of factors which include variables such as: the risk profile of the developer, their knowledge about a particular location, the forecast status of the market both now and in the future, the potential to spread risk across a number of locations in a portfolio, the availability of development finance, and the results of detailed market research into supply and demand considerations. • The process undertaken by a developer for the identification of a suitable site may be largely influenced by the way in which the developer sources finance for the development project. • Regardless of the state of the real estate market at any given time, a prudent developer should always seek the best location appropriate to the proposed highest and best use. • Market research should seek to identify current and projected levels of supply and demand of various types of accommodation in a particular area in addition to short- and long-term trends in rent and capital values.

  4. 2.3 BROWNFIELD AND GREENFIELD SITES • An increasing emphasis has been placed on urban regeneration and the use of existing vacant sites. The aim of urban regeneration is often supported by major changes in government policy to promote the re-use of existing land, often with a different previous land use, known as ‘brownfield’ land. • Brownfield land redevelopment can however be complex and involve substantial risks. • There has been a broad trend to increase densities to new greenfield developments although not allowing densities as high as inner-city development densities.

  5. 2.4 INITIATION • The developer is to actively seek and identify potential development sites. A developer’s ability to acquire land (and existing buildings which form part of the land) is dependent on the availability of land at any particular time. • The availability of land is dependent on many factors including the state of the real estate market, planning policies and physical factors. • The developer, landowner, real estate agent and government bodies sector are the main stakeholders involved in the development initiation process. 2.4.1 Initiation by the Developer • In most instances the development will be initiated by a developer who will identify a potential development opportunity and make the first approach. • A developer may employ a planning consultant to carry out a strategic study of a particular geographical area to identify suitable land within the planning context. • A different approach is possible when a developer employs a real estate agent or approaches a number of real estate agents to identify prospective sites in a particular area.

  6. 2.4 INITIATION 2.4.2 Approach via Real Estate Agent • Agents will often take initiatives and introduce opportunities to developers. • Some agents remain loyal to a certain developer because that particular developer is an established client and they have established a good working relationship over time. • When introducing a site to a developer, the agent should provide enough detail to enable an initial decision to be made by the developer as to whether or not to pursue the potential development opportunity. 2.4.3 Landowner Initiatives • A landowner may take an active role in initiating the development process via a decision to sell their land or enter into partnership with a developer. • Understanding the drivers behind the landowner’s decision to sell can aid the negotiation process and speed up the sale. • The different approaches to sale are: informal tenders and invitations to offer, formal tender, open ‘for sale’ listing, a competition process, and auctions.

  7. Discussion points: What options does the developer have to seek and identify potential sites for development? What are the main differences between brownfield and greenfield sites?

  8. 2.4 INITIATION 2.4.4 Local Authority Initiatives • In many regions the public sector is now less involved in the development process due to government policy. • Local governments are restricted by the scope of their legal powers, the availability of finance and the need for public accountability. They can influence the following: planning allocation, land assembly and economic development. 2.4.5 Site Access and Additional Infrastructure • Access to a site via existing or the proposed provision of roads is important in assessing viable locations for property development. • If the necessary infrastructure does not exist to support a development then a developer will take account of the cost of its provision in the evaluation of the land value. • Local government authorities are largely responsible for deciding the level of infrastructure required and securing its provision. In performing this role they have to determine who is ultimately responsible for the cost of its provision.

  9. 2.4 INITIATION 2.4.6 Public-Private Partnerships with Developers • Many government authorities prefer to retain a legal interest in the development scheme by only granting a long leasehold interest to the developer. • This type of arrangement is usually referred to as a ‘public-private partnership’ (PPP) and overcomes the problem of the government making a financial outlay to develop the site. • Although the arrangements above are presented to the public as a partnership arrangement, this is not a true partnership as the private sector bears the majority of the risk whilst sharing in only some of the rewards. • As an alternative to the above arrangements, some government authorities have entered into joint ventures with developers via companies limited by share or guarantee.

  10. Discussion points: In what ways do government authorities assist the development process in respect of land for development? Why have PPPs become a viable option for property development stakeholders?

  11. 2.5 SITE INVESTIGATION 2.5.1 Site Survey • Undertaken by qualified land surveyors to establish and/or confirm the extent of the site and whether the boundaries agree with those shown in the legal title deed. 2.5.2 Ground Investigation • Unless reliable information already exists as to the state of the ground, a ground investigation needs to be carried out by appropriate specialists. The purpose of the ground investigation is to assess the suitability of the land to support the building structure. 2.5.3 Contamination • The process of property development commonly requires a change of land use – for example from a previous industrial use to a residential use. • When contaminated land is suspected it is important to employ the services of professionals and assess the cost (if any) and timescale for remedial action. • In many instances a developer will not obtain finance for a scheme if there is the slightest risk of contamination.

  12. 2.5 SITE INVESTIGATION 2.5.4 Services • The site survey should establish the existence of services which are available to the site, including the provision of water, gas, electricity and drainage. • The developer must be 100% certain that the site will have full access to those services required by the occupier before proceeding further. 2.5.5 Legal Title • In most cases a solicitor or legal expert will be appointed by the developer to deduce the legal title to be acquired and to carry out all the necessary enquiries and searches before contracts are entered into with the landowner. • The existence of easements and restrictive covenants might fundamentally affect a development scheme. 2.5.6 Finance • The provision of finance is fundamental to the success of the development. • The developer should aim to ensure that the financial arrangements are confirmed to coincide with the acquisition of the site.

  13. Discussion points: When evaluating a particular site, which factors do developers have to consider? What are the elements when undertaking a site survey?

  14. 2.6 SITE ACQUISITION • The prudent developer will always endeavour to reduce the element of risk to a minimum and the site acquisition arrangements are important. • The majority of site acquisitions are on a straightforward freehold basis where the developer then owns the site outright. • The property development may be based on obtaining permission for a change of land use. Developers will carefully weigh the degree of uncertainty in relation to planning and it will be a matter of judgement as to whether the additional exposure risk (i.e. uncertainty) is acceptable. • If the vendor is undertaking to sell the site with vacant possession then the contract should be conditional upon this for there could be a delay in the occupants of a building leaving. • The developer may only be able to acquire a long leasehold interest in the land at a premium with a nominal ground rent.

  15. 2.7 GOVERNMENT ASSISTANCE • There can be barriers to development when (a) land is not made available or (b) development is not initiated by private market forces due to the fact that development is not viable. 2.7.1 Government Agencies • There are various government agencies which exist to implement and administer urban regeneration policies on behalf of the government. • Typically many of these areas are within the inner-cities or regions in economic decline burdened with high unemployment. 2.7.2 Funding and Grants • Direct government financial assistance via funding or grants is often available for urban regeneration schemes.

  16. Discussion points: List the various considerations when undertaking a site acquisition. What are some of the ways in which governments assist the development process?

  17. Chapter 2 Land for Development Property Development(6th Edition) Publisher: Routledgewww.routledge.com Authors: Professor R.G. Reed and Dr S. Sims

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