If you don’t know about the surface and subsurface conditions of your site before construction, you are likely to make those discoveries while your project is being built. You’re much better off doing some “dirt diligence” and uncovering any environmental risks.
While the conditions of the site are unlikely to change during construction, the cost of dealing with any issues only increases with time, and the number of available solutions only goes down with time. The earlier you can discover any potential issues, the more successful your project will be.
Risk in the development process can be divided up into two main categories: future risk and risk in the existing conditions.
Future risks are things that can be predicted in the present but cannot be known for certain. They include things like unknown future demands for space, inflation and construction material costs, and rezoning and entitlement risks.
Existing conditions risks are things that can be investigated and known in the present. They can be further broken down into two categories: risk in the land and risk in any existing structures on the land.
For this article we will focus on existing conditions risks, and specifically risks in the land and not existing structures, because every project has land but not every project has existing structures on the land.
The main categories of land risk are geotechnical, environmental, survey, planning, and utility.
Understanding the Risk
I have often described the role of a developer as that of a risk mitigation strategist. The more a developer understands the risk, the more flexibility and options they have in a project.
There are also financial implications tied to risk. The more risk in a project, the more financially conservative the developer’s projections need to be if they want the project to be financially viable.
As mentioned above, one of the unique differences about risk in due diligence is that the level of risk is limited because the developer doesn’t yet own the land. The more a developer understands the risks or better yet, the lack of risks—associated with the property, the more certainty they can have in the existing conditions before closing.
Defining the Risk
The impact of a risk typically has two components: the likelihood of the risk impact happening and the magnitude of the risk outcome. If a situation has a low level of impact and a low likelihood of happening, then it can be defined as low risk. Alternatively, if the situation has a high level of impact and a high likelihood of happening, then it is a high risk.
High- and low-risk events can be pretty simple to understand. The more challenging aspects of risk are usually in the middle. Also, while some risks operate on a spectrum between high and low impact and probability, some risks are binary, meaning they either happen or they don’t.
Types of Risks
As mentioned above, the risks in our dirt diligence stage fall into five main categories: geotechnical, environmental, survey, planning, and utility.
Geotechnical risk is associated with the physical characteristics and content of the soils on the site. Understanding the quality and types of soils is critical to understanding what types of buildings are suitable to build on that site. Understanding the soils also helps a developer understand what level of soil improvement or foundation design is required to build the desired project.
If grading and excavation are required on a project—which is often the case—having an understanding of the presence and depth of rock on the site is also critical. Rocky soils make it more difficult and expensive to dig. If layers of rock are present and close enough to the surface to cause impacts to the project, blasting or other physical means of removing the rock are often required, at higher cost to the project team.
One of the main challenges with rock is that the presence of rock is not always consistent, but testing every square inch of soil is impractical and cost prohibitive.
While a building foundation can be shifted in design to avoid rocky soils, utility lines present another issue. Certain utilities need to be located underground, and with larger sites the amount of rocky soil removed for a long trench can be expensive.
Another geotechnical risk is unsuitable soil. Unsuitable soil can mean naturally occurring soft soils with a high level of organic materials or non-naturally occurring soils or fill material that were placed on site by a previous owner. On older sites in populated areas or farmland, it’s not uncommon to find unregistered trash dumps buried on site.
Environmental risks can include soil and groundwater contamination, stream and wetland impacts, flooding, and endangered species.
Soil & Groundwater
Soil contamination is often the result of a previous use for the site where a spill or a failure in an existing buried storage tank occurred. As mentioned above, sometimes other items like trash are buried on site that can cause contamination. Some soil and groundwater contamination is caused by known factors, while other contamination is caused by agents that at the time of use were thought to be harmless.
Contaminated soil can also impact the groundwater on site. Contaminated soil and/or groundwater can restrict a developer’s ability to use a drinking or irrigation well on site. Vapor intrusion as a result of contaminants found in soil and/or groundwater can also infiltrate the building envelope and cause issues for the occupants.
Streams & Wetlands
To keep our streams and waterways clean and healthy there are often limits put in place to limit the impact of our built environment on these waterways. In addition to understanding what those limits are, it’s critical to understand where any streams or wetlands may exist, and to further understand how those streams and wetlands will be classified by regulators. Different classifications have different limits, both physical and regulatory.
Another aspect of water that has a profound impact on land use patterns in our city is the location and regulation of flood plains. Not only do the regulations surrounding development in the flood plains change over time, but with climate change and sea level rise, the locations and impact of flood plains change over time.
Like many other items on our due diligence list, the presence of endangered or protected species on your site can have a profound impact on how, what, and when you can build your project. The presence of migratory animals can also change throughout the year, so it’s best to get a firm understanding of the risk and impacts early on in the process.
With a survey you can understand the physical boundary of your site as well as measure the shape of the surface of the land. You can also measure and map various aspects of the existing conditions, like building footprints, underground utilities and storage tanks, the location of wetlands, and the location and density of tree coverage.
Surveys also make the unseen visible. A physical survey can show the location and boundaries of existing property lines and easements. Records research—which can involve physical records, digital records, or both—can reveal other legal restrictions and agreements that may encumber a property. These constraints may exist only in legal agreements and on deeds, but they can absolutely impact the future physical design and layout of a project. Disputed property boundaries can grind work to a halt while the parties determine the rightful owner.
Looking at the current land use regulation on the site as well as understanding the future land use plans and other planning efforts that may impact the site can help reduce risk when it comes to getting entitlements for your development. Having appropriate zoning for your use is helpful, but there are likely many other regulations in the development ordinances or Unified Development Ordinance (UDO) that can impact your project.
Some of these regulations include street frontage requirements, setbacks, parking regulations, building height, and other open space requirements.
In addition to the existing requirements, a rezoning or variance may be required to build the desired project.
Utilities and Infrastructure Risks
Utilities and infrastructure are like the cardiovascular system in the human body. Much of it remains unseen, but no building or project can survive long term without access to water, sewer, power, transportation, and other utilities and infrastructure.
For sewer infrastructure, gravity systems are ideal. Gravity systems depend heavily on the physical characteristics of a site and adjacent sites, as gravity only moves sewage in one direction—downhill. Without gravity, most sewer systems would not work, and cities would stagnate. When gravity is not on your side, pump stations can help move wastewater where it needs to go.
Having a strong understanding of not only your access to existing utilities and infrastructure, but also understanding how your site may play a role in providing utilities and infrastructure, and access to the same, to adjacent projects is critical to the success of a project.
Creating A Path Forward
Understanding the risk factors with a new project can be a daunting task, but the sooner the due diligence process starts the better. Many risk factors can be discovered with time and resources, but the key to success is often understanding how much due diligence is required to reduce your risk to a comfortable level. It’s almost impossible to reduce all risk.
Working with local experts who have boots on the ground knowledge of a site can help. Hiring a consultant with institutional knowledge of a site and market can help frame the appropriate level of diligence. A consultant who understands your desired development program can create a team that sees opportunities where others see obstacles.
Understanding the existing conditions of your site is a critical part of the due diligence process. Getting the appropriate amount of information on your site before starting construction while trying to limit your financial exposure and maintaining a tight schedule can be a challenge. Engaging a consulting team early in the process, one who has a strong understanding of the site, area, and applicable regulations, is critical to a smooth due diligence period.
If you have questions about any of the environmental risks and due diligence items above, feel free to give me a call at (980) 428-4591. If I don’t know the answer, I can reach out to one of our Practice Area Leads and I can find out quickly!