Predevelopment: Site Assessment & Financial Feasibility
Predevelopment begins with the municipality gathering adequate information to assess if housing development on a particular site is physically and financially feasible. The predevelopment phase happens prior to the issuance of a Request for Proposals (RFP) for developers, as the results and information gathered during this phase will need to be included in the RFP. The more complicated the site, the more predevelopment work needed. Options for a viable development become clearer as the pieces of the puzzle start to fit together. The better the information gathered for the RFP about the site and the community’s goals for the development, the better the developer proposals will be.
Note that the predevelopment steps described here assume that a municipality or housing authority is going to dispose of the property to a developer through a RFP rather than develop it themselves. Housing development is complex, time-consuming and, when undertaken by a public entity, triggers a whole host of state laws and requirements that add costs and could make a development financially infeasible. In the vast majority of situations, MHP has found that it makes much more sense for a community to dispose of land to a developer for affordable housing development rather than attempt it themselves.
The standard steps of predevelopment due diligence for a potential development site include:
- Preliminary evaluation of the site
- Review of local and state regulations
- Preliminary engineering and conceptual site design
- Preliminary financial feasibility analysis
Preliminary evaluation of the site A preliminary evaluation of the site's physical characteristics and a review of local, state and federal regulatory requirements will identify issues that affect the development concept. These issues include but are not limited to zoning, wetlands, stormwater, and wastewater. Zoning review and allowable use assessments can be completed by the municipality; it is important to include this information about the site in an RFP. Other tasks needed to evaluate the site should be completed by consultants or engineers, as described below.
A preliminary site assessment should include site boundaries, topography, identification of abutting properties and current uses, identification of anything that would indicate environmental issues, access points to the site, site utilities and/or existing utilities in abutting streets, and current zoning. For sites that do have wetlands or other setbacks the buildable areas and related setback requirements should be indicated on the site plan.
Municipalities typically contract with a site (civil) engineer to undertake a preliminary site assessment. This may involve other qualified professionals if the site has wetlands or other environmentally sensitive areas.
The municipality should also undertake a title search of the property to ensure clear title. It is also vital that you determine the value of the property through an appraisal. This is required for disposition.
Some communities use engineers to lay out possible building configurations and determine how many units can fit on a site. Such plans should be used very carefully and only as a starting point. Developers and their teams (including architects) have a depth of expertise in "placing" buildings on a site, taking important building and site configuration information into consideration, and they should not be limited in their ability to respond creatively to an RFP. If there is an existing building on the site, it is highly recommended that the municipality contract with a structural and/or environmental engineer to perform a physical inspection of the building to identify structural flaws or the existence of pollutants such as asbestos, lead-based paint, and PCBs. Pollutants must be removed or encapsulated in accordance with federal laws and regulations; it benefits both the municipality and the developer to know what these issues and what the potential costs are up front.
Preliminary financial feasibility analysis Though the developer will be responsible for securing all of the financing for the development, it is wise for the municipality to determine whether the proposed development will work financially.
The preparation of a preliminary financial feasibility analysis is typically done by a consultant or technical assistance provider who is familiar with affordable housing programs and development. A preliminary feasibility analysis is based on the development concept, the data collected during the site selection and investigation phase, and available public funding.
This first attempt at estimating the costs to build the development and how it will be financed are preliminary and will be refined many times over the course of the development process.
MHP is able to provide some assistance in preliminary financial feasibility analysis as well as recommend consultants for this work. Another helpful resource in understanding financial feasibility is this Development Budget Checklist.