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A real estate development project is never an end in itself, but is always a means to achieve some greater outcome. The goal could be to expand the family business, to provide affordable housing, to generate a profit on invested assets, or one of a thousand other good reasons. In any case, the investment in the project is expected to provide some benefit to the investor. This benefit can be directly enjoyed (occupied), used to generate an income stream (leased), or converted to cash (sold). The term “exit strategy” refers to the manner by which an investor intends to realize a return on the money, time, energy, and intellect expended for the project.

For some projects, the exit strategy requires leaving and monetizing the project at some partially completed stage, or soon after completion. For others, realizing a return on investment includes holding and using the completed project for the long term, perhaps indefinitely. In every case, a design consultant must understand the client’s exit strategy in order to deliver an appropriate design that meets project objectives. Design decisions are replete with variables that relate to quality, durability, finished appearance, market appeal, initial cost, and maintenance costs; all of which must be properly balanced in view of the client’s project-specific preferences. These preferences will naturally be influenced by the client’s intended method and timing for achieving an investment return.

For example, a client may intend to exit a project without constructing any building or site improvements. A project of this type may simply include taking limited actions that increase a property’s value or appeal to others, and then selling it. A variation on this theme could include constructing selected site improvements such as roadways and utilities, for speculative sale of improved building lots to others. This is a common development approach for residential uses (subdivisions), commercial uses (shopping centers with outparcels), and mixed uses (planned developments). In these cases, unknown parties will assume ownership of an interim condition and complete the site and building development. For these types of projects, a consultant will generally make decisions that preserve project flexibility in order to appeal to a diverse range of potential end-users. This may be done by pursuing flexible zoning parameters for the property, maintaining appropriate lot sizes and proportions, preparing a rough-grading design with compacted building pads, providing flexibility for the number and location of driveway access points, establishing conservative stormwater management strategies and/or infrastructure, setting sanitary sewer and storm sewer elevations as low as practical, providing means to take full advantage of the public water system’s pressure and flow characteristics, etc.

If a client’s strategy includes holding the completed project long-term, maintenance considerations and life-cycle cost analysis will naturally be of more concern than if the intent is to build and sell relatively quickly. For these types of projects, a client may want to consider using a more durable pavement design, energy efficient features such as geothermal heating/cooling or water re-use systems, low-maintenance landscaping, and provisions for future facility expansion. Typical examples of this type of project might include a church or an owner-occupied commercial building.

Some projects are intended to be sold or leased to a very narrow range of user types which may establish the project’s quality level and visual character, or may require specific design features. For example, an office building that will be marketed with a Class A designation will require a relatively refined treatment of finished surfaces and landscaping, and perhaps a more aesthetic stormwater management solution, than would be expected for other types of office or flex-space properties. An office building shell that will ultimately be upfit for a medical services user will generally require a higher level of pedestrian and wheelchair accessibility than required for non-medical office uses.

It is important to recognize that the design consultant’s client is frequently not the end user nor the owner of the project. This condition occurs with design-build project delivery, with fee-developer and build-to-suit projects, and with speculative projects where the ultimate purchaser or occupant is not known at the time of project design. A consultant’s primary obligation will always be to serve client interests, even though these will be distinctly different than the interests of other project stakeholders. These disparities will occur precisely because each party will have a unique exit strategy.

For land development projects, clients and consultants should discuss the client’s project-specific business model, occupancy or marketing intentions, quality requirements, and durability expectations. These factors will be lenses through which design decisions are viewed, allowing the consultant to make decisions consistent with the client’s anticipated method and timing of investment return.

Land development projects are often constructed in sequenced phases designed to meet project needs or goals. Properly used, phasing is a very effective project management tool. In our project consulting work, we have used the concept of phasing to achieve several different purposes.

Phasing is commonly used for relatively large projects that require more financial resources, or will have a longer payback period, than can be justified as a single investment or in a single investment cycle. Phasing is used in these cases to keep the financial investment and the payback period for each portion of the project relatively small. This strategy helps to provide each phased “mini-project” some degree of financial separation and risk isolation.

A variation of this strategy may be used for a project that might have a hard time securing initial funding, but would be expected to have a more robust financial ability later. A good example of this situation is a public charter school, which (in our State) can receive no public funding for construction of capital facilities, but can pay rents or mortgages from received public funds. These funds are approximately proportional to student population, which typically increases over time. In our work with these schools, we will typically develop a strategic masterplan for long-term campus development. The first phase is usually austere, but the stage is set for logical improvements that may be incrementally added on a planned schedule.

Phasing strategies are also frequently used for projects that have multiple uses, especially when a use will require time-dependent or density-dependent conditions to be satisfied before its target market value is realized. In the case of a shopping center with a large anchor user and several outparcels, the smaller parcels would typically have higher value after the anchor is established. Or in the case of a mixed-use development with both residential and non-residential components, business uses may only be viable within the project after the residential areas are sufficiently established to generate some degree of internal commercial demand.

Our office frequently uses the concept of phasing to provide strategic flexibility when establishing vested rights, for example when pursuing a “special use permit” or some other “site-specific development plan” approval process. By statute, these plans establish a (mostly) protected right to implement the project uses and density as shown. At this point in a project, an applicant may not know the optimum phasing boundaries or sequence, yet this entitlement process may require specificity about phasing. For example, specific infrastructure improvements such as roadway widening may be linked to building or occupying a specific component of the project. Once a phasing scheme is approved as a vested right, it can be difficult to substantially alter the approved phasing parameters. Therefore we often recommend breaking the project into more phases than will likely be necessary, since multiple phases can always be implemented at the same time. We also recommend stating on the phasing plan that the indicated phase numbers are for labeling purposes only; and do not require project phasing to strictly follow the numerical sequence.

Phasing is a powerful project management tool. It can be used to establish a logical basis for project implementation, to limit financial risk, to provide an incremental means of developing an otherwise infeasible project, or to provide strategic flexibility to manage unknown future conditions.

Recently our firm had an experience with a property being considered for development of a charter school. The property was situated on high ground with ample road frontage along a newly constructed highway, had relatively accessible utility service, and was nicely proportioned for efficient site layout. This property initially appeared to be well suited for the intended purpose. But after conducting an assessment of project-specific traffic characteristics and nearby roadway conditions, and based on subsequent discussions with DOT officials, we quickly understood that the cost of necessary roadway improvements would consume more than one-half of the project’s entire development budget. These projected costs were not attributable to the property per se, but were due to the specific combination of roadway conditions and project characteristics that would result from development of this property in the proposed manner. This site was quickly dropped from consideration and the project was successfully developed on a more suitable nearby parcel, with manageable project costs.

This experience illustrates the importance and value of conducting a feasibility assessment very early in the life of any potential land development project. Such an assessment should be based on a good understanding of conditions on the site and its vicinity, practical consideration of project characteristics and impacts, and a thorough evaluation of the regulatory requirements for the project. If the assessment demonstrates that the property will satisfy the project’s functional needs and financial constraints, the information learned is useful for project purposes moving forward. If the property or the regulatory environment is found to be unsuitable, the investment is still generally understood as a good one, as it prevents the expensive error of pursuing an infeasible project.

A feasibility assessment should be sufficiently thorough, but may proceed incrementally with the ability to suspend the effort upon discovery of any unsatisfactory “deal-killer” information. Initial efforts are generally focused on the questions of first priority, which usually relate to the ability to secure zoning approvals, achieve the necessary density, obtain acceptable vehicular access, and connect to utility services. This is also the time to begin evaluating the site’s physical condition and infrastructure, functional and aesthetic opportunities and constraints, and the regulatory environment within which the envisioned project would exist. These various characteristics may be understood and evaluated as the property’s “assets” and “liabilities”.

Assuming the initial feasibility work results in satisfactory findings, subsequent work usually revolves around conceptualizing the project’s physical layout and visual appearance, fine-tuning density projections, and estimating site development costs. This work is not always linear. For example, if early questions arise about non-typical costs for necessary utility service connections, this issue may be addressed sooner rather than later, and may take precedence over all other considerations until satisfactorily resolved.

Feasibility assessments are an indispensable tool for project decision-making and risk management. Land purchase agreements for development purposes should be made contingent on obtaining satisfactory findings of project feasibility. An effective feasibility assessment must be based on an appropriate degree of site research and investigation, practical consideration of project characteristics and impacts, and a thorough understanding of applicable regulations affecting project development and operation. Civil Consultants regularly provides customized feasibility services for our clients’ potential projects. Please call us to discuss how we might assist you with your project assessment needs.

Retirement party for Alan Miles, after 21 years with Civil Consultants.