Chapter 2 Land for Development
Property Development (6th 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.
• 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.
2.2 IDENTIFICATION OF DEVELOPMENT SITE
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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.
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.
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.
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.
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?
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.
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.
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?
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.
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.
Discussion points:
When evaluating a particular site, which factors
do developers have to consider?
What are the elements when undertaking a site
survey?
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.
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.
Discussion points:
List the various considerations when
undertaking a site acquisition.
What are some of the ways in which
governments assist the development process?
Chapter 2 Land for Development
Property Development (6th Edition)
Publisher: Routledge www.routledge.com
Authors: Professor R.G. Reed and Dr S. Sims