Pre-Investment Analysis: Land Acquisition
The first step to building a new apartment development is to acquire the land that it is to sit on.
These days, this process is both easier and more complicated. As cities throughout Canada embark on intensifying their urban cores, land which was deemed surplus to development can now be a gold mine for the owners occupying it. The Greater Toronto Area alone expects to add as many as 100,000 new residents per year, and have sought to increase residential densities along major transportation corridors and nodes such as subway and commuter train stations.
Land for new development can come in many forms other than the farmer’s field at the edge of town, or the abandoned industrial building at the edge of downtown. For subdivision builders, that left-over plot unsuited to new housing could become the site of a high-rise apartment and a new revenue stream. In cities, where bylaws permit, owners of shopping malls and high-rise apartments could subdivide their underused parking lots or surrounding land to build additional units. We think it’s fair to say that condos should go on the “A” piece of land, and apartments should be built on the slightly quirkier, good “B” or “C” sites.
The Long, Bureaucratic Process
Even though cities have started to encourage increasing densities along major corridors, there are several steps landowners and developers must take in order to realize a plot’s potential.
The first obstacle is that the landowner and the developer are not always one in the same. While property owners may realise they have excess density they can profit from, they may be experienced only in managing their shopping centre or apartment building and they may not have the necessary experience to navigate the complicated rezoning procedures or the task of building on the freed up land. A developer may have a strong concept of what to build on a property, and the experience to make the project happen, but he or she still has to find the land upon which to build and must get in touch with the owner in order to buy it.
Finding the right property on which to build, or finding the developer to build on it, often requires a third party who knows how to negotiate the complicated process of changing by-laws, conducting feasibility studies, and gathering the right builders. It is a rare landowner who has all the expertise he or she needs to develop his or her excess density from the ground up. A successful development often has multiple partners.
There are many ways to realize the intrinsic value of excess land depending on who the owner is and their development expertise.
A landowner could retain a consultant such as a planner or an architect or a municipal lawyer to contact the city and ask for a rezoning. He or she would then have to decide whether to sell off the excess density to a developer or try to develop the property themselves. They may decide to do a joint venture with a developer in order to realise the full value of their new asset. If the property owner is not comfortable with doing a joint venture, then they may want to just sell off the land.
Another approach a property owner might take is to get a developer involved earlier, doing a deal subject to rezoning, and then letting the developer handle the rezoning negotiations at his cost. This often leads to better results, as a developer is usually experienced in dealing with city planners and understanding what is feasible for a particular plot of land.
Experience Key to Successful Negotiations
In any municipal development, there is a lot of negotiation between the city and various stakeholders (including the property owner, and owners of nearby properties).
Developers who have a lot of experience in building within a city have an advantage in these negotiations, as they have a track record that municipal officials can look at in determining what is feasible.
Municipal officials know that if a developer has come to them with a strong track record, they are more likely to build what they are planning to build. A single property owner with no development experience asking for a severance is less likely to have a clear vision of what to build or how to build it and is more likely to sell the severed land to a developer who may or may not like what was negotiated between the property owner and the city, thus requiring further negotiations when the developer comes back to the city to change what was agreed to.
Knowing What to Build Helps You Understand What to Buy
The best way for a developer to get the best value for any land he or she buys is to have a strong idea of what he or she wants to build on that land before he or she buys it. Only by carefully analysing the local market can he understand what type of development will generate the best investment. It may be that a less expensive plot can be purchased elsewhere which will generate similar returns.
This is particularly important since new apartment developers are already in competition with new condominium developers, who are already scouring Canadian cities looking for excess density on which to develop. Land costs have already increased in the past few years, but a developer or a property owner who has a clear idea of what to build and where, who has pulled together the best data or who has been introduced to the best development partner, has the potential to reap considerable rewards for land which would otherwise lie fallow.
Tell Us About Your Project
Global Director Buildings
Mansoor Kazerouni is an Architect with over 27 years of experience and a significant portfolio of projects completed or underway across Canada, the United States, the UAE, Jordan and India. These include high density high-rise residential buildings, hotels, office, retail, institutional, and complex urban mixed-use developments. A number of these projects have been nominated for and received Urban Design and Architectural Design awards.
Mr. Kazerouni is the Global Director of Architecture at IBI Group, leading a team of over 1,400 Architects, designers and Engineers located in 60 offices worldwide.
Mr. Kazerouni has been a guest lecturer on the subject of architecture and mixed-use design at universities, conferences and various panels. He has also been interviewed on the subject by newspapers, architectural publications, television and other media.
Mr. Kazerouni's abilities and expertise in his field have been recognized by his appointment to the City of Mississauga's Urban Design Advisory Panel, the City of Markham’s Urban Design Advisory Panel and the City of Vaughan's Urban Design Advisory Panel. He is also a past Advisory Board Member of the Urban Land Institute, a member of the Ontario Association of Architects, the Alberta Association of Architects, the Nova Scotia Association of Architects, the Architects Licensing Board of Newfoundland and Labrador, and a member of the Royal Architectural Institute of Canada. He has testified as an expert witness at the Ontario Municipal Board and at Arbitration Hearings related to development sites.
Darryl McCullough CCIM SEC
Broker - Royal LePage Lakes of Muskoka Realty Inc., Brokerage
President - Crescent Equity Management Inc.
Since 1972, I have been given the opportunity to interact with seasoned partners and clients in structuring and organizing both simple and complex real estate transactions involving acquisition, disposition, finance, and consulting in Canada and throughout the United States. It has trained me to bring a unique, personal client-centered approach to each assignment, from simple to complex transactions and the diverse clientele who own them.
In 1984 I received the Certified Commercial Investment Member, CCIM, designation (www.ccim.com); an internationally recognized identity confirming amortized knowledge in the disciplines of investment, development etc.
Another prominent membership I thankfully am able to continue holding is with the U.S. based Society of Exchanges Counselors (www.secounselors.com). This organization shares my belief in pursuing and demonstrating problem solving techniques in the real estate industry based on proven principles of integrity, professionalism, and accountability. Through this organization I continue to dedicate myself to what is true in the discipline of real estate problem solving.
Technology coupled with a learned research and analytical skill set now allows me to carry out these functions with selected projects from my adopted Muskoka home.
I continue to maintain an ever changing “student” learning status not only related to the physical asset, but equal or more importantly, drawing out corporate/personal situations and objectives and then knitting together ultimate benefit packages based on creative solutions via time honoured formulas.