Building Commercial Real Estate Process in Snhomish County and beyond.

So you what to build Commercial Real Estate, but not sure where to start? ..... with the right team, anyone with the funds can build a property that can be utilized by a community and provide a stream of income indefinitely. 

Below is a overview of the basic process and some of the parties that would be needed. It's not as daunting as one may think with the right team in place. 

Site Selection and Evaluation

Using multiple sources of information, commercial real estate developers look at all available properties within a designated trade area that meet basic site requirements. Some of the most important factors that go into determining the right site are:

• Property size
• Visibility
• Traffic flow
• Demographics
• Zoning Restrictions
• Surrounding Infrastructure
• Potential Access Points
• Competitors (and their performance)
• Nearby tenants (and their sales data) 

And there are a whole host of additional factors that play into finding the right property to fit the client’s needs. 

And another one of those important factors is the cost basis. Which site provides the developer, and/or the client potentially lower construction costs and a greater investment opportunity?

Due Diligence/Research

In this phase process, steps are taken in order to satisfy legal requirements and ascertain the risks and advantages of the transaction. As a prospective buyer, developers must thoroughly examine issue like local zoning restrictions, potentials liens, and possible encroachments on the property.

You have to find out what kind of requirements are needed in order to develop the property? You’ll also want to determine what kind of offsite work you may be dealing with. Is the zoning in the area you’re looking at going to be an allowed use? If the property needs to be rezoned or requires a variance, what’s that process? 

Obtaining this information generally involves reaching out to municipal planning departments. 

Once your site has been preliminary reviewed and selected, you’ll move forward with creating a site plan. Doing this allows you to visually address if this project can actually work. Can you meet setbacks? Can you meet parking requirements? These are just a couple of the questions you’ll be able to address once the site plan has been created.

Site Investigation Reports (SIR) / Feasibility Study

Site Investigation Reports are a collection of data/questions assessing the potential issues with the site, or what needs to be done in order to meet all requirements. These include requirements for:

• Parcel Land Use and Zoning
• Engineering
• Building Permits
• Fire Department Requirements
• Building Setbacks
• Parking Setbacks and Requirements
• Landscape Setbacks
• Lighting Ordinance
• Signage Requirements
• Access and DOT requirements
• Off-site/Public Improvements
• Utilities

• Water
• Sewer
• Storm Drainage
• Power
• Gas
• Phone/Cable

The goal of this data is to place emphasis on potential problems that could occur if a project is pursued.

A thorough examination will provide the developer with some confidence that the project is feasible and has the potential to be profitable. Essentially the study asks, do the anticipated future benefits exceed the expected future costs of the proposed commercial real estate development.

Some of the major financial factors to look at include:

• Land Purchase & Acquisition Costs
• Finance Costs
• Professional Fees
• Utility Connection Fees
• Impact Fees
• Permit and Review Fees
• Construction Costs
• Insurances
• Closing Costs
• Income & Profit

Municipality and Lender Required Reports

Site evaluation will also involve obtaining official reports denoting some of the physical and environmental aspects and potential hazards on or associated with the site. 

Phase 1 (Environmental Study)
The Environmental Site Assessment Phase 1 (ESA Phase 1) is an environmental due diligence report prepared for real estate transactions such as land purchases and building purchases.

The main purpose of this report is to ensure there is no soil or groundwater contamination from previous use or neighboring sites. Any contamination in these reports may impact the property’s value or limit its use.

Geotechnical Study (Soil Study)
The goal of this study is to obtain information about the soil consistency and the geological structure of the property. It may uncover certain characteristics of that site that would add costs to the project, and the report will provide certain recommendations for the development project site.

In the case of a geotechnical study for a development project, the following are important areas of examination:

• Footprint of the building
• Land area on which the building will be located
• Land slope
• Land closeness to water (lake, stream, river)
• Geographical location where the building will be located

Survey
A property survey is a legal document that shows the location of all improvements relative to a commercial property's boundaries. It depicts the boundaries and descriptions of the property easements, rights-of-way, and encroachments found on the site.

This report generally contains an illustration of the physical features of the property and a written report detailing the surveyor's opinions and concerns.

FINALIZE THE PSA

Development and Entitlement

Hiring Architects, Engineers, and Consultants

Getting a commercial development off the ground often starts with bringing in a number of consultants including architects and civil engineers. Their role is to ensure the most viable development plans and processes are going to be put into place, resulting in a successful and under budget development project.

Architects
The goal of the architect is to draw up an initial concept scheme, and a good architect will ultimately add considerable value to your project by designing a project that is functional for the tenant and appealing to the marketplace and neighborhood it’s located in.

Landscape Architect
The landscape architect’s job is to design municipality required landscaping around the site plan. This typically means natural plants and trees to offer shade and a natural aesthetic appeal.

Mechanical, Plumbing, Electrical Engineer
These engineers ensure the HVAC is designed adequately for conditions, plumbing is meeting the correct connections and draining properly, and electrical wiring is properly placed in needed areas to meet building codes.

Structural Engineer
Structural engineers work with architects to factor in the weight and loads of construction materials on the ground they sit on. This is to ensure the building will support itself and not sink into the ground. Their main goal is to develop a structural design that is both functional and cost effective.

Civil Engineer
A civil engineer is used to identify many of the technical issues relating to the civil design of project elements. Storm drainage, parking lot and sidewalk design, driveway connections, and conforming to grade requirements are managed by civil engineers. Factors such as topography, environmental issues, or utilities play major roles in how sites are laid out and designed. The engineer's explanation of these issues may result in a different development strategy for the property — one that provides a better project at a lower cost.

 Municipality Submittal and Review

In order for projects to become realities, they must first get the approval of the appropriate municipal and government entities. Submittal and review often entails the following:

Zoning Review
Zoning review is meant to ensure the compliance with standards and provisions set by each municipality, while encouraging quality development. It’s intended to encourage the most appropriate use of the land, enhance aesthetic value, and facilitate adequate provision of transportation, schools, parks, and other public requirements.

Site Plan Review
A detailed site plan is submitted, along with associated documents to particular government departments, agencies, utility companies, etc. for review and initial comments. The purpose of the review is to address how the particular development is designed and to address any issues related to public safety, water supply, sewage disposal, utilities, traffic, emergency access, public obstructions, and a variety of other elements.  

Design Review
Provide architectural building elevations, landscape plans, and drawings related to design principles and meeting the aesthetic requirements.

Once the site plan and design are approved during design review process, you are generally allowed to submit construction drawings for review by the building department.

City Entitlement Process

Before a project can commence, you must be granted permission from local regulatory agencies and the community. It is crucial to be prepared for this stage of the development process, as you may be asked many questions from city planners, local residents, and government leaders.

Examples of Entitlement can be:

• Rezoning
• Zoning Variances
• Use permits
• Utility approvals
• Road approvals
• Landscaping

City Council or City Planning Commission Approval
Oftentimes, new commercial development must first receive approval from city council, city planning commission, or some municipal body. Working with, and gaining approval from the city’s planning department generally allows for a planning commission or city council to approve the project at a formal public hearing. However, not all projects need the official approval of a city council or planning commission.

Public Hearing
A public hearing will take place for local property owners and residents, in order to hear feedback on the proposed commercial development. Any individual or community group including a neighborhood council has the right to speak on the proposed project.

Building Permits Approval/Issuance

Once plans have been reviewed during the usual rounds of the review process, and determined to be in compliance with the city/municipality codes, building permits are then issued. These permits give the developer authority to start construction work and allows for appropriate inspections to be performed.

Close of Escrow

This is essentially the final step in the execution of the initial real estate purchase transaction. A title company or other trusted party will transfer funds and the deed of trust to the involved parties.

For some commercial real estate developers, this step in the process may come at a different stage. Some developers may prefer to close on a property once all of the permits and approvals are in place, while others may actually close before the final permitting process.

Getting a property fully approved, entitled, and closing on the land requires time, experience, relationships, and persistence. But once the project has been given approval and is entitled, it’s ready for contractors and builders to bring the commercial development to life.

Construction and Tenant Turnover

Now that your development plans have been submitted and approved, your permits issued, and you’ve closed on the property, it’s time to start building. This is where the contractors and builders will bring the commercial development to life.

 

Overall Construction Coordination

As a commercial real estate developer, the construction aspect of the project revolves around managing and coordinating the construction stage, as opposed to actually constructing the building. Working with general contractors and subcontractors, the overall construction coordination often consists of:

Weekly Construction Calls and Reports
As a way to stay in direct contact with general contractors, a developer’s construction department will generally take part in weekly update calls. These status updates focus on the overall progress of the development, while going over upcoming schedules and time frames. Additionally, the calls will address any major issues that may hinder the timely completion of the project.

In addition to the weekly construction calls, written progress reports are submitted by the general contractors to the developer in order to address the project status, schedules, etc.

Handling RFIs from Contractors and Architects
During the construction phase, commercial developers are also responsible for managing Requests for Information (RFIs). These requests often come in because not all construction documents may address every single matter of the construction process.

These requests are issued in order to help contractors get clarification on project details or ask for a decision to be made on particular elements.

Building Construction

The building construction is when the property you envision begins to take form as you add structure to your property. Frames, walls, roofs, and all of the major components of building the “bones’ of a commercial real estate development. Some of the major work involves:

Site Utilities
Site utility work includes preparing the property to connect to public utilities. These including water, sewer, electric, and gas.

Framing
Framing consists of creating the broad pieces that will give support and shape to the building. This may involve either a wood frame, structural steel, or concrete.

Roofing
Depending on the type of roof, this may involve elements such as building out the rafters, ceiling joists, trusses, insulation, structural deck, and the appropriate roof covering.

HVAC
Involves preparing the installation site by setting either setting a pad or installing a rooftop support structure. The ductwork and electrical is also prepared for interior connection.

On-site Work

Beside the construction of the building itself, work must be done on the surrounding property in order to make for a complete, well-rounded commercial development. Some of that on-site work includes:

Site Grading
This is the process of distributing dirt in a strategic way to ensure the proper water runoff and to prepare the site for additional work, such as paving and landscaping.

Paving and Striping Parking
Once the site is properly graded, you can move forward with paving the parking area. The parking area should be smooth, contain a level, compacted base, and have proper drainage. Then, upon proper paving, the lot can be striped.

Landscaping
This involves installing irrigation, planting decorative or shade trees, bushes, flowers, gravel, or any other elements that add to the visual appeal of the property.

Inspections

Upon completion of each project, inspections must take place to ensure that the major elements meet all municipal codes and ordinances. While periodic inspections take place during the construction phase, final inspections must be performed to assure that the buildings are safe for occupancy. Elements inspected include:

• Structural and Building envelope
• Roof surface
• Plumbing
• Electrical
• HVAC
• Fire/Safety
• Interior Elements

Construction Close-out

The close-out of a project typically involves developing a detailed schedule of duties including punch lists, equipment testing, start up procedures, and occupancy. Close-out may also involve gathering and retaining critical records and documentation for the project, in case there are any questions or issues to be addressed after project completion.

The close-out process addresses everything from the work performed by contractors to returning of rented equipment. It’s to ensure that your new development is more than prepared to be turned over to the tenant.

Punchlist
The construction punchlist is used to address any unresolved tasks or issues before final occupancy. It’s used as a control measure to ensure the quality standards of the developer and future tenant are met.

The punchlist usually includes a plan for completion of items including any minor repairs to finishes, cleanup, or any outstanding installations.

Certificate of Occupancy

Once the project meets all of the final inspections, codes, and ordinances, the appropriate municipal agency will issue a Certificate of Occupancy for the property.

Issuance certifies that the property is suitable for occupancy by the proposed user, or type of user, and that the building complies with the plans and specifications that were initially submitted and approved.

Tenant Move-in

The “final step” in the commercial real estate development process: tenant move-in. As it implies, this means the property is prepared for the tenant to set up shop and eventually open for business. The project has officially gone from conceptualization to construction to handing over the keys.

For more information on purchasing or developing commercial real estate in Snohomish County or beyond, consider contacting a Snohomish County Commercial Real Estate Broker or an Everett Commercial Real Estate Broker. 

My information: 

Scott Weitz

Designated Broker/ Attorney

T: 206.306.4034

Scott@WeitzCommercial.com